value creation strategies - wirc-icai.org · value creation strategies: real estate developers-anup...
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Value Creation Strategies:Real Estate Developers
- Anup P. Shah16th July, 2011
2 Days Conference @ Hotel Sea Princess
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Corporatisation of Firms
© PRAVIN P. SHAH & CO. 2
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Corporatisation – Alternatives
� Builders’ Firms can be converted into
Company / LLP:
� Slump / Asset Sale by Firm to Co.
� Slump / Asset Sale by Firm to LLP
© PRAVIN P. SHAH & CO. 3
� Conversion of Firm into Co. under Part IX
� Conversion of Firm into LLP under LLP Act
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Corporatisation by Sale
Shareholders / Partners
© PRAVIN P. SHAH & CO. 4
Firm Co. / LLPSlump / Asset Sale of Bus.
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Corporatisation by Sale
� Slump Sales or Asset Sales
� No Court process
� Quick
� Factors to be considered
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� Factors to be considered
� Capital Gains
� Stamp Duty
� VAT
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Tax Consequences
� Slump Sale to Co. / LLP
� Lump sum consideration – No itemised break-up
� Excess of SC over Networth = LTCG / STCG
� Gains Taxable u/s. 45 r.w. s.50B
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� Itemised Sale to Co. / LLP
� Itemised Break-up over A&L
� Gains Taxable:
�
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Tax Exemption
� Exemption for Slump / Itemised Sale to Co.:
� S.47(xiii) Conditions
� All A / L of Firm / AOP become that of Co.
� All Partners become SHs in same proportion
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� Partners do not receive any other consideration
� SH of all Partners is at least 50% of Voting Power
� 50% SH of Partners continues for 5 years
� Exemption Available even if Sale to LLP
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Tax Exemption
� Analysis of s. 47(xiii):
� Can it be a New Co.?
� Firm can trf 2 Businesses to 2 Cos.?
� Only Business A/L to be trd?
Can RPS be issued to partners?
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� Can RPS be issued to partners?
� Shares can be issued at a Premium?
� Transfer inter se Partners permissible in 5 years?
� If conditions violated
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Stamp Duty
� Slump Sale / Assets Sale
� Conveyance under BSA & ISA
� Bifurcate assets into Immovable & Movable
Bifurcation for SD purposes negates IT
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� Bifurcation for SD purposes negates IT
Benefit?
� Under BSA - SD on Movables
� Under BSA - SD on Immovables
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Stamp Duty
� Slump Sale
� Sale of Undertaking as a Going Concern
� SD on:
Net Market Value of Undertaking; OR
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� Net Market Value of Undertaking; OR
� Gross Value of Assets
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Stamp Duty
� Slump Sale / Asset Sale
� Under ISA : No SD if transfer:
� between Transferor Co. owning at least 90% of
Transferee Co. or
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Transferee Co. or
� between Parent Co. & min. 90% Subsidiary or
� Two 90% Subsidiaries of one Parent Co.
� Applicable in Mumbai?
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Indirect Taxes – Slump Sale
� VAT – Applicable?
� Sale of Bus. Undertaking = Movable Goods?
� Lump sum consideration
� Is it a sale in course of Business?
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� Service Tax / CENVAT
� Trf. of CENVAT Credit available to Buyer Co?
� No Service Tax on Sale
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Issue of Shares
� Articles of Association
� 0.2% of Share Capital – Max. Rs. 50 lakhs
� At every increase in Authorised Capital
� Issue of Share Certificate:
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� Issue of Share Certificate:
� 0.1% of the Value of the Share
�
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Corporatisation by Conversion
Shareholders / Partners
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Firm Co. / LLPConverted by Statute
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Part IX Conversion
� Firm⇒⇒⇒⇒ Co. u/s. 565 of Cos. Act (“Part IX”)
� Transfer of Undertaking from Firm to Co.?
� Sale of Property?
� Statutory provision – ROC must Incorporate Co?
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� Conveyance reqd.?
� Statutory vesting of property
� Capital gains?
� Is it a Transfer u/s. 45(4)?
� Stamp Duty?
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Part IX Conversion
� Conditions
� Registered Firm
� 7 or more Members of Co.
� On Conversion Co. only has Partners as Members
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� On Conversion Co. only has Partners as Members
� Do conditions of s.47(xiii) need to be satisfied?
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LLP Act Conversion
� Firm⇒⇒⇒⇒ LLP u/s. 55 of LLP Act
� No Transfer of Undertaking from Firm to LLP
� Statutory provision – ROC must Incorporate LLP
� Conveyance reqd.?
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� Statutory vesting of property
� Capital gains?
� Is it a Transfer u/s. 45(4)?
� Stamp Duty?
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Mergers
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Mergers – Key Issues
� Appointed Date – Retrospective?
� Rationale? Tax Planning only?
� Share Exchange Ratio
� Fairness Ratio in case of Listed Cos.
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� Accounting Treatment
� Auditor’s Certificate for Listed Cos.
� Reduction of Capital of Transferee Co.
� St. Ex. Permission
� 3/4th SH Majority + Court
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Mergers – Key Issues
� Tax Losses & MAT Credit
� Stamp Duty
� ICDR Regs for Listed Cos.
� Listing Requirements
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Reverse Merger
Finvest Ltd.UNLISTED
Ace DevelopersLISTEDMERGER
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• Unlisted Co.
• Loss Making
• Low activity
• Listed Developers
• Profitable
• In Business
Q. Listing of Finvest Ltd. possible?
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Reverse Merger
� Listing possible?
� SEBI’s approval required
�
� Justification
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� Justification
� Under a Court Scheme of Merger / Demerger
� Procedural matters
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Forward v. Reverse Merger - Comparison
Available?Available?C/f Unabs. Dep
Available?Available?C/f Bus. Loss
Reverse MergerForward Merger
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Advisable?Required?Capital Reduction
Unlisted can be
listed?
Continues?Listing
Remains with itAvailable?MAT Credit of
Loss making Co.
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Merger
� SD on Merger is an evergreen issue
� BSA Conveyance defn. – s.2(g) Includes
� Every Instrument,
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� Every Decree / Order of Civil Court
� Every HC Order u/s. 394 of Cos Act or RBI
Order under Banking Act for the
amalgamation or reconstruction of Cos.
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Specific Entry for SD
� Entries for Merger under Sch. I
� Maharashtra
� Gujarat
� Karnataka
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� Rajasthan
� MP
� AP
� West Bengal
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Merger – BSA Rates
� Art. 25 Conveyance
� 10% of Market Value of shs issued + consideration
� But not exceeding higher of:
� 5% of Market Value of Immovable Property of Transferor
© PRAVIN P. SHAH & CO. 26
located in Maharashtra; or
� 0.7% of Market Value of shares issued
� Upper limit if 5% of MV of IP > 10% of MV of shs
� For Market Value of Imm. Property –
� Refer to Ready Reckoner Value
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Merger – BSA Rates
Details Scenarios
1 2 3
FMV of Shares 1000 1500 1700
FMV of Imm. Prop. In Mah. 3000 500 120
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FMV of Imm. Prop. In Mah. 3000 500 120
10% of FMV of Shares 100 150 170
5% of Imm. Prop. 150 25 6
0.7% of FMV of Shares 7 10.5 11.9
Stamp Duty 100 25 11.9
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Merger – BSA Rates
� Art. 25 Conveyance
� For Market Value of Shares :
� If Transferee listed & quoted for Trading on a St. Exch. :
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FMV as on Appointed Date in Scheme or
Date of Court Order
� Transferee Not listed &/or listed Not quoted for Trading:
FMV of Transferor’s Shares or
FMV as determined by Collector
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Merger – ISA
� Gemini Silk (Cal)
� ISA – West Bengal
� Merger u/s. 394 is a sale
� Sale by a Court Order
� Consideration is shares
� Order is an instrument – SD as
� Madhu Intra Ltd. (Cal)
� Under ISA – WB – 2 Member
� Overrules Gemini Silk
� HLL (SC) not cited or considered
� No SD on Order unless express
provision like under BSA
© PRAVIN P. SHAH & CO. 29
� Order is an instrument – SD as
on Conveyance
� Hindustan Lever (SC)
� Under BSA – did not deal with
ISA expressly
� SD payable even if no amdt to
BSA
provision like under BSA
� Delhi Towers (Del)� Decision under ISA ~ Delhi
� Considered all decisions
� Order u/s.394 is a conveyance
� Liable to stamp duty
� Hero Motors (All)� Order u/s.394 a conveyance
� Liable to stamp duty
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Demerger
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Demerger – Key issues
� Vertical Split
� Tax Neutral
� Transfer at Book Values
� Trf. of Bus. Undertaking on Going Concern Basis
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Trf. of Bus. Undertaking on Going Concern Basis
� At least 3/4th SH should become SH
� A/c : Whether Capital & reserves to be split?
� Stamp Duty
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Demerger for Value Creation
INDIABULLS FINANCIAL SERVICES
NBFC
SHAREHOLDERS
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NBFC
INDIABULLS SECURITIESStock Broking Company
INDIABULLS REAL ESTATE Real Estate Developer
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Demerger for Value Creation
INDIABULLS FINANCIAL
SERVICES
INDIABULLS REAL
ESTATE
INDIABULLS
SECURITIES
SHAREHOLDERS
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SERVICES
NBFC
ESTATE
Real Estate Developer
SECURITIES
Stock Broker
Demerged
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Company Takeover
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Company Takeover
� Key Considerations:
� Takeover Regulations for Listed Cos.
� FEMA Provisions if one party is a PROI
� Capital Gains on Seller
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� Capital Gains on Seller
� Exempt if LTCG through St. Ex.
� MAT if Corporate Seller even if gain exempt
� Indexation or 10% in case of Listed LTCG
� Tax Clearance Certificate / TDS if Foreign Seller
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Acquisition in Listed Cos.
Acquirer’s SH Acquisition possible
0-14.99% Any % any time till 14.99% ~ Excess PA
15-55% 5% in any FY ~ Excess PA
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55-75% Up to 5% in tranches / via buyback
55-75% Over 1st 5% - by making a PA
Over 75% Follow Delisting Regulations, 2009
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Stamp Duty
� Transfer of Shares
� SD covered by ISA and not BSA
� SD under ISA @ 0.25% of consideration
No SD if shares in Demat form
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� No SD if shares in Demat form
� Is Demat possible for Unlisted / Private Cos.?
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Takeover of Real Estate Co.
� Pvt. Co.’s only Asset is Real Estate
� Sale of 100% Shares
� SD on Conveyance @ 5% or Shares @ 0.25%?
� Society Transfer Charges payable?
© PRAVIN P. SHAH & CO. 38
� Society Transfer Charges payable?
� What if Co. owns land in MIDC
�
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Other Modes
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Partnership
� Admission
� If share in firm is bought in cash > Rs.50,000 =
1% subject to maximum of Rs. 5,000
� If share in firm is bought in property =
© PRAVIN P. SHAH & CO. 40
Same as Conveyance on MV of property
� Retirement / Dissolution
� If retiring partner taking property is not same as
introducing partner = Conveyance (min. Rs. 100)
� Else = Rs. 200
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LLP
� LLPs becoming very popular
� LLP: Owner contributes land &
Builder contributes finance + labour
� SD under Art.5 or 25 or 47
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� SD under Art.5 or 25 or 47
� 5% or 0.2% or Rs. 100
� Is it a Partnership?
� Is it a Conveyance?
� Is it an Agreement?
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HUF Partition
� Instrument of Partition :
� 2% on the Market value of the Separated Share of
the Property
� On which Value is Stamp duty leviable?
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� What is the meaning of Separated Share?
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Hindu Minority
� Natural Guardian needs Court’s permission to
deal in IP belonging to a Hindu Minor:
� Sale, Gift, Mortgage
� Lease over 5 years
© PRAVIN P. SHAH & CO. 43
� Lease over 5 years
� If not obtained then transaction voidable at
instance of Minor or person claiming under him
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SEBI VCF Regs.
� “Real Estate” removed from the ‘Negative
List’ Sectors
� Can a VCF be set-up in the form of an LLP?
� Can SEBI registered VCF invest in an LLP?
© PRAVIN P. SHAH & CO. 44
� Can SEBI registered VCF invest in an LLP?
�
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FDI & Instruments
© PRAVIN P. SHAH & CO. 45
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Relevant Regulations
Consolidated FDI Policy – DIPP, Ministry of Commerce
© PRAVIN P. SHAH & CO. 46
FEMA Regulations –Mode of Investments
+ Reporting
AP Dir Circulars –RBI’s changes
from time to time
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Relevant Regulators
FIPB –Cases
requiring Govt.
Approval
DIPP –Formulates FDI Policy
Part of FinanceMinistry
Part of Commerce Ministry
© PRAVIN P. SHAH & CO. 47
Approval
RBI –Nodal
Regulatory Authority
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Key Types of Foreign Invst.
Foreign Investment
Primary - FDI Secondary
Invst by PROI in Capital of an Indian
Co.
Purchase by PROI of Shs. Of Indian Co.
© PRAVIN P. SHAH & CO. 48
Direct Downstream Portfolio Off-Market
FIIs
NRIs / PIOs
Repatriable
Non-repatriable
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Types of FDI
Foreign Direct Investment
© PRAVIN P. SHAH & CO. 49
Automatic Approval
No PermissionMoF/FIPB – Inflows up to Rs.1200 cr.
CCEA – Inflows above Rs. 1200 cr.
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Instruments
Foreign Direct Investment
Equity
© PRAVIN P. SHAH & CO. 50
EquityHybrid
Voting Non-Voting CCDs CCPS
Warrants
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Equity Shares
� Consideration must be for Cash
� All other cases – FIPB approval
� Issue Price of FDI Shares
© PRAVIN P. SHAH & CO. 51
� Issue Price of FDI Shares
� Listed Cos.
� Unlisted Cos.
� Must be issued within 180 days of funds
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Equity Shares
� DCF Valuation
� No Guidelines specified
� Discretion to Valuer in selection of:
� No. of Years’ Forecast
Discount Rate / WACC
© PRAVIN P. SHAH & CO. 52
� Discount Rate / WACC
� Growth Rate
� Method of Calculation of Terminal Value / Perpetuity
� Q. Cos. where DCF is difficult?
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CCDs
� Quasi-equity Instruments
� Subject to ECB restrictions?
� Cap on Rate of Interest?
� All-in-cost ceilings like ECBs?
© PRAVIN P. SHAH & CO. 53
� All-in-cost ceilings like ECBs?
� Tax Deduction benefits to Investee Co.
� Can be redeemed / bought back by Co.?
� Time limit for conversion into Equity?
�
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CCDs
� Circular 1/2011
� Issue Price or Conversion Formula to be specified
upfront at time of issue
� Price @ Conversion Date > FMV @ Issue Date
FMV = DCF OR Preferential issue Pricing under ICDR
© PRAVIN P. SHAH & CO. 54
� FMV = DCF OR Preferential issue Pricing under ICDR
� Earlier Issue Price was required
� Flexibility in Earn-out Formula Deals
� Beneficial for PE / VCF Deals
� Co. gets higher Value if performance good
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Preference Shares
� Part of Sectoral Caps Only if CCPS
� If RPS / OCPS – treated as ECBs
� Must be converted within a reasonable
timeframe
© PRAVIN P. SHAH & CO. 55
� Plain redemption / buyback possible?
�
� Max. Dividend Rate
�
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NVR Shares
� Issue of NVR Shares possible?
� When Useful?
�
� If Public Company?
© PRAVIN P. SHAH & CO. 56
� If Public Company?
� Examples
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Others
� Issue of
� Warrants?
� Partly Paid-up Shares
� Flip-flop in Policy
© PRAVIN P. SHAH & CO. 57
� Flip-flop in Policy
� Recent Reports - Proposal
� Paid-up portion - a part of Capital
� 25% paid-up upfront
� Balance within 12 months
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FDI in Real Estate
© PRAVIN P. SHAH & CO. 58
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FDI in Real Estate
� General Prohibitions
� Real Estate Business
� Construction of Farm House
� Trading in Transferable Development Rights (TDRs)
© PRAVIN P. SHAH & CO. 59© PRAVIN P. SHAH & CO. 59
� ‘Real Estate Business’:
� Buying and selling of immovable properties
� Assignment of Development Agreements?
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FDI in Real Estate – Guidelines
� 100% FDI allowed under Automatic Route subject to
conditions in Construction & Development Projects
� Projects Permitted
� Housing
� Commercial Premises
© PRAVIN P. SHAH & CO. 60© PRAVIN P. SHAH & CO. 60
� Commercial Premises
� Resorts
� Educational Institutions
� Recreational Facilities
� City & Regional Level Infrastructure
� Townships
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Conditions
� Minimum Area
� Serviced Housing Plots – 10 hectares/25 acres
� Built-up area: 50,000 sq. mtrs. or 5,38,200 s.ft.
� Combination Project – Any one of above 2
© PRAVIN P. SHAH & CO. 61© PRAVIN P. SHAH & CO. 61
Combination Project – Any one of above 2conditions
� What is ‘built-up area’?
� What is included and what is excluded in it?
�
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Conditions
� Investment – Minimum Capitalisation
� In case of WOS – US $10M
� In case of JV – US $ 5M
� FDI in a JV in 99:1 between Foreign & Indian
© PRAVIN P. SHAH & CO. 62© PRAVIN P. SHAH & CO. 62
� FDI in a JV in 99:1 between Foreign & Indian
Partner – What should be the min. capital?
� Securities Premium included in Min. Cap?
�
� Whether Preference Shares included?
�
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Conditions
� Funds to be brought within 6 months of
commencement of business
� What is Commencement of Business?
� Would it be date when Co. buys land as its SIT
© PRAVIN P. SHAH & CO. 63© PRAVIN P. SHAH & CO. 63
� Would it be date of approval by Local Authority?
�
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Conditions
� Original Investment locked-in for 3 years
� Entire Invst. or only what is brought in initially?
� If Invst. in Tranches?
� Is Invst. In excess of Min. Cap. also locked-in?
© PRAVIN P. SHAH & CO. 64© PRAVIN P. SHAH & CO. 64
�
� 50% project must be developed in 5 years
from date of obtaining all statutory clearances
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Conditions
� Lock-in of Initial Investment
� Can Foreign Investor sell to another NR within 3
years?
� No outflow /remittance from Co.
Is lock-in on Investor or on Investment?
© PRAVIN P. SHAH & CO. 65
� Is lock-in on Investor or on Investment?
�
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Conditions
� Investor cannot sell ‘Undeveloped Plots’
� ‘Undeveloped Plots’ means road, water supply, street
lighting, drainage, sewerage, etc. not made available
� Developer to provide infrastructure and obtain CC
before disposing serviced housing plots
© PRAVIN P. SHAH & CO. 66© PRAVIN P. SHAH & CO. 66
before disposing serviced housing plots
� All Conditions should be mandatorily fulfilled
� Earlier Exit ?
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FDI in Real Estate – Issues
� Whether Agricultural Land can be acquired for
developing serviced housing plots?
�
� If FDI & non-FDI compliant projects, can Co. get
© PRAVIN P. SHAH & CO. 67© PRAVIN P. SHAH & CO. 67
FDI?
�
� FIPB planning to monitor end-use of funds on a
Qtly basis
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FDI in Real Estate – Issues
� Whether Service Provider to Developer needs to
comply with conditions of P.Note?
� Whether FDI in LLP engaged in Real Estate
activities possible?
© PRAVIN P. SHAH & CO. 68© PRAVIN P. SHAH & CO. 68
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Investment by NRIs and PIOs
� Prohibited Investments
� Investment in Agricultural Property,
Plantations & Farm Houses
� Trading in Real Estate and TDRs
© PRAVIN P. SHAH & CO. 69© PRAVIN P. SHAH & CO. 69
� Trading in Real Estate and TDRs
� Conditions of Press Note No. 2/2005?
� Can invest in smaller size projects also
�
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Investment by NRIs and PIOs
� Specified Categories of Invst.:
� Devlp. of serviced plots & built-up res. Premises
� Const. of Res.& Comm’l Premises / Offices
� Townships
© PRAVIN P. SHAH & CO. 70© PRAVIN P. SHAH & CO. 70
� Urban Infrastructure facilities ~roads, bridges
� Mfg. of Building Materials
� Invst. in Participatory ventures in above
� Invst in Hsg Finance Inst.
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FDI in Infrastructure &Other Real Estate-based Projects
© PRAVIN P. SHAH & CO. 71
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FDI in Hotels & Hospitals
� 100% FDI under the Automatic Route in Hotels &
Tourism Industry
� Hotels includes:
� Restaurants
� Beach Resorts
© PRAVIN P. SHAH & CO. 72© PRAVIN P. SHAH & CO. 72
� Beach Resorts
� Other Tourist Complexes
� Convention centres, seminar units
� 100% FDI under Auto. Route also allowed in Hospitals
� Conditions of Press Note No. 2/2005
� Mixed Use Projects
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FDI in Industrial Parks
� 100% FDI allowed under the Automatic Route
� FDI in Setting up of IPs and also in Established IPs
� STPs, IT Parks, Bio-tech parks, etc
� Conditions of Press Note No. 2/2005?
Conditions for FDI
© PRAVIN P. SHAH & CO. 73© PRAVIN P. SHAH & CO. 73
� Conditions for FDI
� Minimum 10 Units and No Single Unit occupying more than 50%
of the allocable area
� Minimum 66% of the total allocable area for Industrial Activity
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FDI in Industrial Parks
� Must have Infrastructure Facilities:
� Must have Common Facilities:
�
� Must be for Industrial Activities:
© PRAVIN P. SHAH & CO. 74© PRAVIN P. SHAH & CO. 74
�
� Tax Benefits under Industrial Park Scheme, 2008
� Difference between IPS 2008 and Circular 1/2011
� Which is more liberal
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FDI in SEZs
� 100% FDI allowed under the Automatic Route in
Development of :
� SEZs
� Free Trade Warehousing Zones
© PRAVIN P. SHAH & CO. 75© PRAVIN P. SHAH & CO. 75
� Free Trade Warehousing Zones
� Conditions of P/N 2/2005 Applicable?
� Conditions of SEZ Act should be fulfilled
� What about Transfer of Shares of an SEZ Developer?
� Recent Stand of BoA
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Structuring of FDI
Mauritius Co. Cypriot Co.
© PRAVIN P. SHAH & CO. 76
SPV
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Downstream FDI
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Downstream Investment
NR
ICO FDI Compliant Land
FDI
© PRAVIN P. SHAH & CO. 78
ICO
ICO2Non-FDI CompliantLand
Invst.
Permissible?
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Downstream Investment
� Yes, if:
� Company Owned & Controlled by resident Indian
citizens
� Owned – More than 50% equity ownership with Indian
© PRAVIN P. SHAH & CO. 79
� Owned – More than 50% equity ownership with Indian
citizens; AND
� Controlled – Power to appoint majority of Directors
with Indian citizens
� Both conditions must be satisfied
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Exit Options for FDI Investors
� Some popular Exit Options for PEs:
� IPO
� Buyback by Co.
© PRAVIN P. SHAH & CO. 80
� Buyback by Co.
� Buyout by Promoters
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IPO - SEBI DIP G/L
� SEBI ICDR Regs:
� In case of IPO/ Offer for Sale
� All Convertibles – CCDs / CCPS should be
converted or they lapse on DRHP
© PRAVIN P. SHAH & CO. 81
converted or they lapse on DRHP
� Pre-IPO capital locked in for 1 year
� N.A. to a VCF holding shs. for 1 yr. as on DRHP
� N.A. to pre-IPO shs. held for 1 year as on DRHP
and Offered For Sale
�
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Buyback by Co.
� Limits under Cos. Act
� 25% of Eq. + Free Reserves
� 25% of Eq. Capital per FY
� Can use Free Reserves, Sh. Premium
© PRAVIN P. SHAH & CO. 82
Can use Free Reserves, Sh. Premium
� Auto. Route of RBI (for Foreign PE) if:
� Not in Financial services’ sector
� Pricing G/L – 2 Valuation reports
� Form FC-TRS
�
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Buyout of PE by Promoters
� Automatic Route of RBI?
� Pricing Guidelines?
� Capital Gains Tax in hands of PE
� Put Option given to Foreign Investor to sell CCDs
© PRAVIN P. SHAH & CO. 83
� Put Option given to Foreign Investor to sell CCDs to Promoters
� Fixed Price Put Option
� RBI’s Query �
� What if Put Option subject to Pricing Guidelines?
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Buyout of PE by Promoters
� Put Option given to Foreign Investor to sell CCDs to Promoters
� Is Put Option legally valid in a Public Company
� Amdt. to SCRA
� SEBI’s View
© PRAVIN P. SHAH & CO. 84
� Bombay HC Decisions
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ECB for Real Estate
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ECB in Real Estate
� Violation by one Co. in Group
� Can others within Group borrow?
�
� FCCBs Funds
© PRAVIN P. SHAH & CO. 86© PRAVIN P. SHAH & CO. 86
� FCCBs Funds
� Should also comply with ECB Regulations?
� ECBs have End Use Restrictions for Real Estate.
� Do FCCB Funds also have same End use restrictions?
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ECB in Real Estate : Automatic Route
� Eligibility
� Any Company except hotels sector : $ 500 m p.a.
� Hotels & hospitals : $ 100 m p.a.
� Individuals, Trusts, Non-Profit Organisations : Ineligible
© PRAVIN P. SHAH & CO. 87© PRAVIN P. SHAH & CO. 87
� Amount
� Up to $ 20 m : Average Maturity 3 yrs
� $ 20 m to $ 500 m : Average Maturity 5 yrs
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ECB in Real Estate : Automatic Route
� Permitted End Uses
� Import of Capital Goods
� New Projects / Expansion in Infrastructure Sector:
� Hotels, Hospital, Industrial Parks, Airports, Ports, Road, Power,
Cold Storage, etc.
© PRAVIN P. SHAH & CO. 88© PRAVIN P. SHAH & CO. 88
Cold Storage, etc.
� Restricted End Uses
� On-Lending / Co. Acquisition / Investment in Capital Mkt.
� Real Estate
� Working Capital / General Corporate Purpose / Repay
Existing Rupee Loans
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ECB in Real Estate : Automatic Route
� All-in-Cost Ceiling
� Includes Interest, Fees & Expenses in Forex
� Excludes Commitment Fee / Prepayment Fee / INR Fees
� Avg. Maturity 3-5 yrs : 6 mth LIBOR + 300 b.p.
© PRAVIN P. SHAH & CO. 89© PRAVIN P. SHAH & CO. 89
� Avg. Maturity > 5 yrs : 6 mth LIBOR + 500 b.p.
� Prepayment up to $ 500 m permitted provided
minimum Avg. Maturity period complied
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ECB in Real Estate : Approval Route
� Eligibility
� FIs in Infrastructure Finance
� NBFCs, FCCBs by HFCs, Multi-State Co-Op. Soc., SEZs
� Others ineligible under the Automatic Route
© PRAVIN P. SHAH & CO. 90© PRAVIN P. SHAH & CO. 90
� Amount
� $ 750 mn. with Avg. Maturity > 10 yrs
� Prepayment & Call/Put Option : Not Permissible
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ECB in Real Estate : Approval Route
� Permitted End Uses
� Same as that under the Automatic Route
� Development of Integrated Township - allowed till 2010
� No renewal thereafter
SEZ Developers allowed for providing Infrastructure
© PRAVIN P. SHAH & CO. 91© PRAVIN P. SHAH & CO. 91
� SEZ Developers allowed for providing Infrastructure
Facilities
� Restricted End Uses : Same as under Auto Route
� All in Cost Ceilings : Same as under Auto Route
� Prepayment above $ 500 mn
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ECB for SEZ Developers
� ECB under Approval Route allowed for SEZ Developers for
providing Infrastructural Facilities within SEZ
� Power
� Telecom
� Railways & Roads / Bridges
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� Railways & Roads / Bridges
� Sea Port & Airport
� Mining, Exploration
� Urban Infrastructure ~ water, sewerage, sanitation
�