News
Wednesday, September 18, 2013
^ Top

Government plans to set up panel to track execution of expressway
projects

FDI norms for construction sector likely to be eased

MMRDA invites bids for underground Metro corridor

Work on airport projects in five tier II cities comes to a halt

How realtors lost the plot

GMR sells highway stake for Rs 222 cr to cut debt

Govt's infra push fails to improve fortunes of port sector
Government plans to set up panel to track execution of expressway projects
ET Bureau,
September 18, 2013
A projects review earlier this month revealed that the NHAI is yet to resolve technical
and other parameters in the Supreme Court-mandated expressways.
The government plans to set up a panel to track execution of expressways, after the
highways authority's blueprints and groundwork for three projects put on the fast track
by the Prime Minister's Office in July were found lacking in multiple aspects.
A projects review earlier this month revealed that the National Highways Authority of
India (NHAI) is yet to resolve technical and other parameters in the Supreme Courtmandated Eastern Peripheral Expressway and the Delhi-Meerut and Mumbai Vadodara
expressways.
The government has now decided to form a committee comprising senior officials from
the highways ministry, department of expenditure and the Planning Commission to
track the Authority's progress, said people with knowledge of the development. The
committee will meet periodically, beginning this Saturday, and their observations will be
reviewed by the PMO.
"The committee will hold periodic meetings to review the progress being made in
implementing the expressway projects by the vertical set up under the NHAI last month
for this purpose," an official said.
News
According to the project review, the earthwork required to build a pass, or right-of-way,
for the 135-km Eastern Peripheral Expressway (EPE), may not even be available in the
vicinity. It will now be necessary to re-examine the design and its cost implications.
The EPE, mandated by the top court eight years ago, is meant to handle heavy trucks and
non-Delhi bound vehicles. The NHAI has already missed the August deadline for request
for quotation for this job.
An official said that while the deadlines set by the PMO may be difficult to meet, its
directive has brought to the fore the tardy progress made even the most basic legwork for
these expressways.
Similarly problems plague the 125-km Delhi-Meerut expressway, where changes in the
scope of the project would be required, which in turn would necessitate a modified
proposal to be sent to the Public Private Partnership Appraisal Committee. A decision is
yet to be taken on how the utilities would be shifted—a must before any road can be
built. The NHAI has been given a week to resolve this issue.
^ Top
FDI norms for construction sector likely to be eased
Hindu Business Line
September 18, 2013
The Government has started work on easing Foreign Direct Investment norms in the
construction industry in order to help attract more foreign capital into the cash-strapped
sector.
The Industry Department is finalising a draft note (that will soon be submitted to the
Cabinet) proposing to relax conditions related to entry guidelines , minimum-area
requirement and minimum lock-in period for investments, an official in the Department
News
of Industrial Policy and Promotion toldBusiness Line. The note has been prepared based
on inputs given by the Ministry of Housing and Urban Poverty Alleviation.
“We will soon finalise the note and circulate it to other Departments and Ministries
concerned for their comments. We will then place it before the Cabinet for clearance,”
the official said.
SEVERAL RIDERS
At present, the FDI policy permits 100 per cent foreign investment, including in housing,
townships and construction infrastructure, but several restrictions apply.
These include a three-year lock-in period for investments in housing and townships, a
minimum built-up area of 50,000 square metres and minimum capitalisation of $10
million for wholly-owned subsidiaries.
To make the sector more attractive, the Housing Ministry has proposed that the
minimum lock-in period be reduced, the built-up area required be brought down to
20,000 sq m and minimum capitalisation reduced to $5 million.
“We have incorporated most of the suggestions made by the Housing Ministry to the
extent possible. It is also important to get the views of others such as the Finance
Ministry and the Planning Commission. We will incorporate all views in the final note,”
the official said
INDUSTRY LUKEWARM
Meanwhile, industry players said the proposed changes may not help attract funds
immediately as foreign players will closely monitor the fine-print before doing so.
There is country-risk, exchange rate risk and even policy risk associated with FDI. The
Government needs to maintain clarity. A drastic change in policy midway will be
detrimental to India’s investor confidence, was what industry players said when asked to
react to the move. “To make an investor take the final decision of investing his funds in
India, the domestic real estate story needs to be strengthened and stabilised. Interest
rates in India are one of the highest; consistent support and incentives for the sector are
lacking . If these areas can be worked on, there is a huge appetite that exists; but
investors will now judge both intent and commitment of the policy makers before
making long term commitments,” said Gaurav Pandey, Senior VP, Head — Research and
Consulting, PropEquity, a real estate consulting firm.
The construction sector attracted a little more than $22 billion in FDI between 2000 and
2013, accounting for 11 per cent of the total FDI that came into India, but foreign
investments into the sector have started drying up since 2012.
^ Top
MMRDA invites bids for underground Metro corridor
Indian Express
September 18, 2013
News
Hoping to start construction by May next year, the Mumbai Metropolitan Region
Development Authority (MMRDA) has invited bids for pre-qualification for the
construction of the Colaba-Bandra-Seepz Metro, which will be Mumbai's first
underground Metro corridor and one of the most expensive infrastructure projects in the
city.
Separately, the Union finance ministry's Department of Economic Affairs Tuesday
formally signed a loan agreement for the Metro project with Japan International
Cooperation Agency (JICA) in Delhi for the disbursement of the first tranche of Rs 4,553
crore or 71,000 million Yen. The agreement was signed by Rajesh Khullar, joint secretary
of the department of economic affairs and Shinya Ejima, the chief representative of JICA
in India.
UPS Madan, metropolitan commissioner at MMRDA, said, "The loan would be disbursed
in three tranches. A formal agreement will be signed for every tranche before
disbursement. We have called for requests for qualification for the civil works to
construct the corridor as a cash contract."
PRK Murthy, chief of the transport division at MMRDA, said, "We will evaluate the prequalification bids by November 30 and call for request for proposals by the first week
December. The shortlisted companies will be given 60 days to submit their tenders and
work orders will be issued by March. The disbursement of JICA's loan will be as per
construction schedule."
The Colaba-Bandra-Seepz Metro will be a 33.5-km corridor with 26 underground
stations. The project cost is pegged at Rs 23,126 crore. JICA is providing a loan for 57.2
per cent of the project cost with a tenure of 30 years at an annual interest rate of 1.4 per
cent.
The Central and state governments are contributing an equity of 10.4 per cent each and a
subordinate debt of 4.4 per cent and 7 per cent of the project cost, respectively. The
Mumbai International Airport Limited, which has agreed to construct three stations as
stakeholder contribution, will account for 3.4 per cent of the project cost. Besides, the
MMRDA is looking to raise 4.3 per cent by either property development, or levying an
impact fee on the areas that will benefit from the project. The rest is expected to come
from a Central government scheme meant to bolster exports as the Metro corridor will
boost connectivity to SEEPZ, an exports promotion zone.
The MMRDA has invited the bids for the civil work in seven packages. As per the bid
documents, the tunnels would be constructed using boring machines instead of the
blasting or drilling method. This will limit the disturbance caused to the surrounding
area.
^ Top
Work on airport projects in five tier II cities comes to a halt
The Hindu
September 18, 2013
Air connectivity still remains a distant dream for citizens of five tier II cities in the State
— Gulbarga, Bellary, Bijapur, Hassan and Shimoga.
News
Work on all five projects has come to a halt for various reasons — land acquisition
disputes, breach of agreements and withdrawal of developers from projects on account
financial non-viability.
The BJP government had proposed Greenfield airports in Gulbarga, Shimoga, Hassan,
Bellary and Bijapur with an intention to providing air connectivity to tier II cities and
thereby, fuel economic growth in these cities. All these projects were proposed on the
public-private partnership model.
Addressing presspersons here on Tuesday, Minister of State for Infrastructure Santosh
Lad said that developers have withdrawn from five projects on account of economic
slowdown, financial non-viability, land acquisition disputes and breach of agreements
signed with the government, and internal differences among project developers.
GULBARGA, SHIMOGA
Mr. Lad said that work on the Gulbarga and Shimoga projects stands grounded. All
construction activity has ceased, with the airports’ two main joint venture partners
fighting between themselves. The government has initiated the process of terminating
the Gulbarga project. As much as 567 acres had been acquired for it.
Regional Airport-Holdings International Ltd. (Rahi), a 60:40 joint venture between Rahi
Aviation Holdings Pvt. Ltd. (RAH) and IL&FS Transportation Networks Ltd. (ITNL), has
signed a memorandum of understanding (MoU) with the government for building
airports in Shimoga and Gulbarga. The Shimoga airport was mooted on 660 acres. Both
firms, accusing one another of causing delay, have taken their dispute to court. The
project work in Gulbarga came to a halt last year following a dispute between the
shareholders over alleged financial irregularities. Rahi was granted the lead role to
develop, finance and build the two airports through a State government order on
February 18, 2010.
HASSAN
The project work on Hassan airport has also been stopped. The public-private
partnership project has been awarded to Jupiter Aviation and Logistics Ltd. The
promoter was to invest about Rs. 1,200 crore on the project, while the government was
to provide 474 acres near Hassan abutting the Bangalore-Mangalore National Highway.
However, land acquisition process has been completed.
Mr. Lad said that the project developer has termed the project as “non-viable, and that
no progress has been made in the last four years.” The Hassan project was approved by
the H.D. Kumaraswamy government in 2007.
BIJAPUR
Mr. Lad said that the Bijapur airport project has hit a roadblock with the private agency
that has the contract to implement it demanding additional land, which according to
government officials, amounts to breach of contract.
News
The Chennai-based Marg Ltd., which has been given the contract for implementing the
project, is learnt to have urged the government to allot additional land to build a
township near the proposed airport.
The Cabinet approved construction of a Greenfield airport in Bijapur in 2007 and the
MoU with Marg was signed in January 2010, and 727 acres of land had been acquired.
The government spent around Rs. 30 crore for land acquisition. Marg proposed to spend
Rs. 200 crore on developing the airport and maintaining it for 30 years, after which the
contract may be renewed.
BELLARY
Mr. Lad said that the airport project in Bellary has not taken off due to land acquisition
dispute. Some farmers have gone to court questioning land acquisition. Moreover,
Airports Authority of India too has declared that the project was “unviable”, he said.
^ Top
How realtors lost the plot
The Hindu Business Line,
September 18, 2013
Their sales have slowed down and they have a mountain of debt to repay. And that is
forcing real estate developers to sell non-core assets and look for other ways to raise
money.
HDIL’s promoters, for instance, have pledged nearly 96 per cent of their holding to raise
funds.
DLF has been on a divestment spree since September 2011, selling a 28-acre plot in
Gurgaon to developer M3M, NTC land in Mumbai to the Lodhas, and an IT Special
Economic Zone in Pune to Blackstone. It has also exited wind-turbine projects in Gujarat
and Karnataka and is still trying to divest its stake in luxury hotel chain Aman Resorts.
The tough environment is also forcing developers to sell properties at lower rates.
“There is a lot of pressure. Sales have gone down and cash-flow issues have arisen.
Properties are being sold at prices not normally given,” confirms Lalit Kumar Jain,
Chairman of CREDAI (Confederation of Real Estate Developers’ Associations of India).
Apart from the slow offtake, developers are also grappling with higher construction
costs, which have reduced their margins.
The per sq. ft. cost of construction for a seven-storey building was Rs 1,200 two years
back and that has now risen to Rs 1,700.
The overall material cost, including sand, steel and cement, has gone up by 40 per cent
while per-day rates for unskilled labour have gone up from around Rs 140 to Rs 200. For
skilled labour, rates have risen from Rs 400 to Rs 700.
“Labour is now a scarce commodity. People don’t want to leave villages,” adds Jain.
News
In part, this is because of the Mahatma Gandhi National Rural Employment Guarantee
Act (MGNREGA), which offers 100 days of work every year to each rural household at a
wage rate of Rs 174 a day.
Moreover, with elections round the corner and approvals for infrastructure projects hard
to come by, developers will have less room to increase prices.
“Besides, the money from politicians, which gets invested in real estate, is currently
being diverted to elections. So, developers are forced to sell at lower rates to generate
liquidity,” says an analyst, speaking on condition of anonymity.
SLOW BURN
The current stagnation in the market is the result of an imbalance created during the last
six-seven years, when land parcels were sold at high prices.When the real estate boom
was at its peak, builders valued their land at exorbitant rates, created special purpose
vehicles (SPVs) with fund managers and launched projects at high rates. To get investors
to put money into a project, they quoted high prices, promising quick appreciation.
The result is that while per capita income during the last five years has grown at a CAGR
of 13.9 per cent (without adjusting for inflation), property prices have appreciated by
over 21 per cent in Mumbai, 13.8 per cent in Pune and 11 per cent in Chennai.
VICIOUS CYCLE
Given the bullishness in the market, investors poured in money in the hope of making
quick profits.
Thereafter, they sold their assets at even higher rates to other investors with the same
promise of price appreciation in a few months. The price thus rose with every transaction
and people got richer buying and selling houses.
The cycle ended only when a real user bought a property, at a very high rate. In today’s
scenario, this trading in houses cannot go on due to the liquidity crunch and because real
buyers are cautious about big-ticket investments.
Sunil Rohokale, MD of ASKgroup, which manages a PE fund that invests in residential
projects, says returns on plain residential projects are better than those on longergestation projects, such as Special Economic Zones, industrial parks and commercial
buildings. “There is nobody to buy those assets right now,” he points out.
^ Top
GMR sells highway stake for Rs 222 cr to cut debt
The Economic Times,
September 18, 2013
GMR Highways, part of the Bangalore-based GMR Group, has sold a majority stake of
74% in its Tamil Nadu toll road asset —GMR Ulundurpet Expressways (GUEL) — for
around R222 crore to IDFC Alternatives’ India Infrastructure Fund 1 (IIF1).
News
IDFC Alternatives is the alternate asset management vertical at IDFC. GUEL operates
the highway stretch of 73 km from Tindivanam to Ulundurpet on National Highway 45
in Tamil Nadu. The project commenced commercial operations in July 2009.
GUEL, along with three other road assets of the company, was on the block for the last
six months, and GMR was understood to have been engaged with a host of Indian and
foreign investors for the stake sale.
The other three assets up for sale are understood to be an annuity project Adloor YellaReddy-Gundla Pochanpalli in Andhra Pradesh, and BOT toll assets of HyderabadVijaywada and Hungund-Hospet.
According to market sources, SBI Macquarie and Morgan Stanley had also looked at
these assets for a possible stake purchase. At present, sources say IDFC is in discussions
with GMR for other road assets as well. However, IDFC Alternatives managing partner
and CEO MK Sinha did not comment on the same.
While GMR and IDFC refused to comment on the valuations for GUEL, market sources
say the company would have received about 5% premium on the book value. The
originally R800-crore Ulundurpet project saw a cost escalation of about R90 crore
during construction, taking the project cost close to R890 crore, say sources.
GMR’s equity investment in the project is close to R291 crore, and the project has a term
loan of about R596 crore, the source said. “The toll collected on the project is about R203
crore in the 2011-2012 fiscal,” he said.
GUEL is the second divestment in GMR’s roads portfolio. In February, GMR Highways
divested 74% stake in Farukhnagar-Jadcherla highway in Andhra Pradesh to SBI
Macquarie Infrastructure Investments and SBI Macquarie Infrastructure Trust for R206
crore.
GMR Group CFO Madhu Terdal said the divestment was in line with GMR Group’s
‘Asset Right and Asset Light Strategy’ and will reduce debt by about R459 crore as on
August 31, 2013, on a fully consolidated basis.
Sinha of IDFC Alternatives said, “This investment is our first major acquisition and a
step in the direction of implementing our road sector strategy. Given the uncertainty and
delays in implementing under construction projects, we will continue our focus on
acquisition of operating road assets.”
Analysts say the deal brings in a much-needed breather to GMR, which is saddled with a
debt of over R33,000 crore.
“While this deal will help GMR Group to de-leverage and free up capital to be invested in
other projects under development, infrastructure focused funds institutions get
opportunity to refinance such assets and further enhance their returns on the invested
equity,” Centrum Capital head (infra solutions group) Sandeep Upadhyay said.
IIF1 closed in June 2009 with a fund size of $927 million from Indian and international
institutional investors. As of June, IIF1 had invested 84% of its total capital across 15
News
portfolio companies and R250-300 crore is still left in the fund, said Sinha. IIF has
investments in over 1,878 lane km of roads in India.
^ Top
Govt's infra push fails to improve fortunes of port sector
Business Standard,
September 18, 2013
Traditionally, the port sector has seen good flow of foreign investment. One of the first
infrastructure segments to attract private capital, the sector, however, recorded a fall in
capacity addition since 2010-11. Against a rise of nine per cent in capacity in 2010-11,
2011-12 saw a rise of only four per cent rise. In 2012-13, major ports saw capacity
addition of six per cent. Though re-bidding and low cargo volume were the primary
reasons behind the poor show, clearly, the government’s infrastructure push is yet to
show results in the port sector.
While capacity addition has been hit by the poor economic climate, little has been done
to improve the efficiency of ports. In April and May 2013, major ports recorded an
improvement in the average turnaround and pre-berthing time for ships—these fell
seven and 11 per cent, respectively. The drop wasn’t so much due to capacity addition
woes, but due to a fall in trade, as the number of vessels handled by ports fell from 3,260
to 3,139 during the period.
“Port modernisation is yet to happen. Facilities such as automated lifts and continuous
power supply are not available. The turnaround time of a ship could be about three days
here; in Singapore, it is less than six hours. More time means more cost for shippers,”
said Aman Chaddha of the Engineering Export Promotion Council.
With no major port project taking off in the last couple of years, the inflow of foreign
direct investment into the sector in 2011-12 was nil, against $10 million in 2010-11 and
$65.4 million in 2009-10. The poor economic environment has resulted in substantial
underutilised capacity.
News
As of March this year, total port capacity stood at 745 million tonnes (mt), while the total
cargo handled during 2012-13 fell 2.58 per cent to 545.68 mt. In May 2012, Prime
Minister Manmohan Singh had set a target of awarding 42 projects for the port sector.
He had also set capacity addition and investment targets of 244 mt Rs 35,000 crore,
respectively.
Experts say the long-term outlook for the sector, too, is skewed. Capacity addition isn’t
being seen, considering the future cargo requirements.
“We need more containerisation on both sides of the coastline to provide support to our
exports. This is not happening,” said a port sector analyst, on condition of anonymity.
Among the projects awarded last year, only 10 mt of container terminal capacity was
added, at Jawaharlal Nehru Port Trust. Most projects are keeping in mind the import
requirements of fuel and energy — petroleum, oil & lubricants and coal cargo.
Not only has private investment been short of targets, various companies opted out of
port sector projects last year. French shipping company Louis Dreyfus Armateurs was
left with no choice but to leave behind its cranes at the Haldia port, after a dispute there.
The company was set up as a joint venture for operations of the ABG Haldia bulk
terminal. Spanish firm Dragados, too, has been looking to exit a partnership with
Gammon Infrastructure for the Indira Container Terminal at the Mumbai port.
“The tariff regime is such that if a private operator handles more cargo, he has to reduce
rates. Efficiency being discouraged, global operators don’t upgrade or bring their best
technologies to India,” the senior analyst said.
The multi-million dollar fourth container terminal at the Jawaharlal Nehru Port would
account for private investment of Rs 8,000 crore. This has generated interest among top
global players, including Port of Singapore Authority, Maersk, Dubai Port World and
Port of Hamburg.
^ Top