BackGIFT City to use collective investment scheme funding for 2nd phase
This will be the first instance of a Sebi-registered CIS being used to fund the development of a government project
Premium(AFP)
Mumbai: GIFT Collective Investment Management Co. Ltd, India’s first and only registered collective investment scheme (CIS), will fund the development of the second phase of the Gujarat International Finance Tec-city Co. Ltd, or GIFT City, billed as India’s first global financial services centre.
This would be the first such instance when a CIS registered with the Securities and Exchange Board of India (Sebi) would be used to fund the development of a government project.
While CIS entities have been in the news in the last couple of years, it was mostly on account of Sebi clamping down on unregistered entities raising public money. GIFT Collective Investment is a subsidiary of GIFT City.
The CIS entity will take care of the infrastructure funding needs for the second phase, which begins next year for the development of 22 million sq. ft of space, said Ramakant Jha, managing director and group chief executive officer of GIFT City.
While the first phase envisaged the development of 10 million sq. ft, a total of 12.6 million sq. ft has already been developed and allotted. The authorities plan to raise money through CIS for providing infrastructure such as roads, water, power and technology for the second phase.
“There is a gap between the time we put in place the infrastructure and realize revenue. That gap funding can be done using CIS, which could issue units related to development rights and those units could be traded as securities," said Jha.
Interestingly, the firm was registered as a CIS in 2008 but never launched a scheme to raise money. While the idea was to use the CIS vehicle to raise funds for the development of the first phase of GIFT City, the stock market downturn of 2008 forced project executives to look for alternate sources of funding.
Jha says the stock market crash hit the appetite of investors for such products and, instead of using the CIS entity, funding for the first phase of the project was tied up through a consortium of banks.
At an appropriate time in future, the CIS entity can be operationalized, he said.
The concept of using a CIS is positive and, given that it is a government entity, the level of scepticism will also be low though this has never been tried before in a regulated environment, said Abizer Diwanji, partner and head of financial services at consulting firm EY.
While the formal regulations governing international financial services centres (IFSCs) are not yet in place, there has been no dearth of entities looking to set up shop in the financial enclave.
On Thursday, National Stock Exchange of India Ltd (NSE) became the latest entity to sign a memorandum of understanding (MoU) with GIFT City to set up an international exchange.
On 12 January, BSE Ltd announced that it will establish an international exchange in GIFT City by investing ₹ 150 crore to acquire 300,000 sq. ft of space. The BSE Brokers’ Forum, an umbrella body of brokers trading on BSE, has also said that it will set up its back-office operations at GIFT City at a cost of ₹ 200 crore.
The development of GIFT City has been divided into three phases with the third phase aimed at developing 30 million sq. ft between 2020 and 2024.
The concept took shape in June 2007 when then Gujarat chief minister Narendra Modi proposed an international financial services centre to rival such special zones in Dubai, Singapore and Hong Kong. It is taking shape on the banks of the Sabarmati river, near Gujarat’s capital Gandhinagar.
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