SBICap stressed fund receives 100 fresh applications; number likely to double

SBICAP Ventures, the manager for the government's Rs 25,000-crore stressed-asset fund, has received more than 100 new applications from real estate developers during the COVID-19 crisis after it decided to cut the internal rate of return (IRR). The number is expected to double in the near future, sources told Moneycontrol.

The fund has received applications from Tier 1 cities and also from Tier 2 towns such as Jaipur, Karnal, Mohali and Panchkula, Nagpur and Nasik. Developers have sought an investment ranging from Rs 10 crore to Rs 400 crore for the stalled projects, they said.

They have received more than 100 proposals over the last one month but are facing challenges on account of the coronavirus pandemic, sources said.

While Tier 1 developers have found it easier to send the information required even from remote locations as they have access to digitized documents, smaller developers are finding it difficult to execute the initial due diligence process as borders may be sealed or physical documents may be kept in a different location, sources said.

They said the number of applications are likely to double in the months to come.

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The number of stalled and likely to be stalled projects is expected to go up. Even during the lockdown expenses such as interest charges were continuing and there is dearth of money to fund construction. Many more developers, including big players are in touch with them and may submit applications soon. The number may almost double in the months to come, sources said.

The fund has received a total of 500 applications so far and given preliminary approvals to close to 50.

Of the applications received so far about 40 percent are from NCR and 20-25 percent from MMR and others are scattered across the country. The total number of applications received so far is around 500, sources said.

Emails sent to SBICap remained unanswered.

Sources had told Moneycontrol in May that, even during the lockdown, as many as 50 projects received preliminary approvals and 8-9 projects were given final approval. The total funding involved in these 50 projects is over Rs 5,000 crore.

These investments are linked to progress in construction work and will pick up post the lockdown.

The investments in these projects are construction linked. Since no construction took place on sites in the last two months due to COVID-19, no payment has been released. There is also an escrow mechanism in place to ensure that there is no fund diversion. As soon as lockdown is lifted and actual construction begins on site, there will be a spurt in disbursal in the next two to three months, sources had said.

Legal processes involving signing of documents/agreements, stamping will also be undertaken post the lockdown, they said.

SBICAP Ventures, the manager for the government's Rs 25,000-crore stressed asset fund, last month decided to cut the internal rate of return (IRR) to 12 percent from 15 percent. SWAMIH INVESTMENT FUND I is the name of this special window announced by the government in November 2019.

While this is expected to help real estate developers in the mid and affordable housing segment to fund their ongoing projects, which may have suffered due to the lockdown and also help expedite the process of buyers getting their homes, experts said the main challenge of existing lenders not willing to give a no objection certificate (NoC) until they receive equal status still persists.

In November last year, the central government announced a Rs 25,000-crore fund to help complete over 1,500 stalled housing projects, including even those that have been declared NPAs (non-performing assets) or admitted for insolvency proceedings. The move is likely to help 4.58 lakh housing units across the country. Only RERA-registered projects with positive net worth will be provided funds.

In February, the government said over Rs 540 crore had been invested in some stuck residential projects.

The alternative investment fund (AIF), set up to provide last-mile funding for stalled real estate projects by the government, had cleared Rs 540 crore for two housing projects in Mumbai and Bengaluru earlier this year.