The generous tax concessions heaped upon SEZ developers are on the wane forcing some of them to dilute equity in their projects in Karnataka.Bangalore-based Adarsh Developers and Golden Gate Properties are offloading stake in their projects by this year-end or early next year,a move that many developers are exploring to book profits partially or exit the project.
Adarsh Developers,for instance,has put Adarsh Prime Projects,a 50-acre IT SEZ located on the Outer Ring Road on the block.
It is learnt that southern real estate major RMZ Corp is close to sealing a Rs 1,000-crore,or $200 million,deal to buyout an Adarsh Prime Projects in the technology hub of Bangalore.BM Jayeshankar,MD of Adarsh Developers,said the company was offloading stake in the project,but didnt disclose the quantum of stake dilution.Adarsh is investing Rs 527 crore into the SEZ providing employment to over 4,000 people.
Another Bangalore-based developer,Golden Gate Properties,is planning to dilute stake in its Rs 500-crore SEZ project in North Bangalore.But Pratap Kunda,MD at Golden Gate Properties didnt disclose how much stake he plans to dilute in the project.
Last year,the SEZ Board of Approvals (BOA) gave its nod to three firms DLF Ackruti Info Parks (Pune),Aachivis Softech and Sterling Addlife Mundra hospitals -- to dilute stake in their projects.This move may spur mergers and acquisitions in the SEZ space and enable SEZ developers to consolidate their businesses.
Six years since the SEZ Act was introduced,these exportpromoting zones have lost sheen with developers in delivering more bang for the buck.SEZs haven't found favour with many developers after the Minimum Alternate Tax (MAT) and the Dividend Distribution Tax (DDT) were introduced, added Kunda.Companies have to pay a MAT at 18.5% on their book profits.Experts say this will impact their cash flow position and reinvestment opportunities.
With no decrease or rollback of MAT on developers of SEZ as well as units operating within these export-promotion zones,there has been an increase in the tax liability of SEZ developers and units.The financial model of the SEZ and the nature of incentives have changed with the budgetary announcement of MAT and DDT.The goalpost kept changing for the developers,which didnt bode well for the SEZ story.Other asset classes like commercial and residential have proven to be more attractive for them, said Ravi Ahuja,executive director at real estate consultancy Cushman & Wakefield.
But others like DivyaSree Developers have denotified a portion of their 75-acre SEZ land in Whitefield and converted it into the STP (software technology park) scheme.We are reducing the size of the SEZ rather than going for stake dilution.We have got 20 acres out of total 75 acres denotified, said Bhaskar Raju,executive director of DivyaSree developers.Raju also said with STP benefits ending by 2014,it has made it less attractive.
The SEZ Board of Approvals has given an in-principal nod for over 50 SEZs in Karnataka out of which 20 SEZs are operational with an investment outlay of Rs 15,240 crore comprising 88 units.The rest are under various stages of implementation.
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