Coming soon, cheaper loans for SEZ developers
The Economic Times, July 9, 2009, Page 9
Amiti Sen NEW DELHI
THE government may soon release a new set of rules that will make domestic borrowing cheaper for developers of special economic zones (SEZs), thereby boosting investment in these tax-free manufacturing hubs.
The Reserve Bank of India (RBI) recently granted infrastructure status to projects in these SEZs that will let them access cheaper funds. The central bank will now release revised commercial real estate exposure (CREE) guidelines for banks to identify activities that can be classified as infrastructure.
The draft norms have been circulated for comments to banks and general public, and once they are finalised, SEZ developers will be able to source funds at about 2% cheaper rates for most activities in the processing areas that are likely to be classified as infrastructure, a government official said.
The move will benefit both small and big SEZ developers such as Reliance, Adani and Essar, and IT companies such as Infosys and Wipro.
“The development is definitely positive as SEZs have been facing a cash crunch due to the global slowdown. Once banks adopt the new guidelines, the zones will get access to funds earmarked for infrastructure projects at lower interest rates, giving them a much-needed boost,” the official added.
As per the draft guidelines, the exposure of banks towards purchase and development of land for SEZs that will be repaid from the sale proceeds or rental of the plots given on lease to the units in SEZs will be classified as CREE exposure. The cost of plots would include the cost of land acquisition as well as the cost of land development.
However, if a single company is developing an SEZ completely or partially for its own use and its repayment will depend on the cash flow generated by economic activities of the units in the SEZ along with the general cash flow of the company rather than the level of real estate prices, it should not be classified as CREE but as infrastructure lending.
Similarly, if there are co-developers in an SEZ who undertake a specific job such as provision of sewerage and electrical lines, among others, and are paid by the main developer based on the work in progress, such exposure will be classified as infrastructure lending, the draft notification said.
What draft GUIDELINES SAY
Exposures of banks towards purchase and development of land for SEZs that will be repaid from the sale proceeds or rental of the plots given on lease to units in the zones will be classified as real estate exposure. Cost of plots would include cost of land acquisition as well as cost of land development
If an SEZ is being developed by a single company entirely or mainly for its own use and the repayment will depend on the cash flow generated by the economic activities of the units in the SEZ and the general cash flow of the company rather than the level of real estate prices, it should be classified as infrastructure lending
If there are co-developers in an SEZ who undertake a specific job such as provision of sewerage, electrical lines etc and they are paid by the main developer based on the work in progress, such exposures will be classified as infrastructure lending
What THEY MEAN
SEZ developers will be able to source funds at cheaper interest rates for most activities in the processing area that are likely to be classified as infrastructure
Infrastructure projects usually get loans at interest rates that are cheaper by about 2% than those offered to real estate
Move to benefit both small and big players, including Reliance, Adani, Essar and IT companies such as Infosys and Wipro
The Economic Times, July 9, 2009, Page 9
Amiti Sen NEW DELHI
THE government may soon release a new set of rules that will make domestic borrowing cheaper for developers of special economic zones (SEZs), thereby boosting investment in these tax-free manufacturing hubs.
The Reserve Bank of India (RBI) recently granted infrastructure status to projects in these SEZs that will let them access cheaper funds. The central bank will now release revised commercial real estate exposure (CREE) guidelines for banks to identify activities that can be classified as infrastructure.
The draft norms have been circulated for comments to banks and general public, and once they are finalised, SEZ developers will be able to source funds at about 2% cheaper rates for most activities in the processing areas that are likely to be classified as infrastructure, a government official said.
The move will benefit both small and big SEZ developers such as Reliance, Adani and Essar, and IT companies such as Infosys and Wipro.
“The development is definitely positive as SEZs have been facing a cash crunch due to the global slowdown. Once banks adopt the new guidelines, the zones will get access to funds earmarked for infrastructure projects at lower interest rates, giving them a much-needed boost,” the official added.
As per the draft guidelines, the exposure of banks towards purchase and development of land for SEZs that will be repaid from the sale proceeds or rental of the plots given on lease to the units in SEZs will be classified as CREE exposure. The cost of plots would include the cost of land acquisition as well as the cost of land development.
However, if a single company is developing an SEZ completely or partially for its own use and its repayment will depend on the cash flow generated by economic activities of the units in the SEZ along with the general cash flow of the company rather than the level of real estate prices, it should not be classified as CREE but as infrastructure lending.
Similarly, if there are co-developers in an SEZ who undertake a specific job such as provision of sewerage and electrical lines, among others, and are paid by the main developer based on the work in progress, such exposure will be classified as infrastructure lending, the draft notification said.
What draft GUIDELINES SAY
Exposures of banks towards purchase and development of land for SEZs that will be repaid from the sale proceeds or rental of the plots given on lease to units in the zones will be classified as real estate exposure. Cost of plots would include cost of land acquisition as well as cost of land development
If an SEZ is being developed by a single company entirely or mainly for its own use and the repayment will depend on the cash flow generated by the economic activities of the units in the SEZ and the general cash flow of the company rather than the level of real estate prices, it should be classified as infrastructure lending
If there are co-developers in an SEZ who undertake a specific job such as provision of sewerage, electrical lines etc and they are paid by the main developer based on the work in progress, such exposures will be classified as infrastructure lending
What THEY MEAN
SEZ developers will be able to source funds at cheaper interest rates for most activities in the processing area that are likely to be classified as infrastructure
Infrastructure projects usually get loans at interest rates that are cheaper by about 2% than those offered to real estate
Move to benefit both small and big players, including Reliance, Adani, Essar and IT companies such as Infosys and Wipro
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