Is SEZ land a means for debt-ridden developers to monetise their assets? Seems so, as a clutch of real-estate developers are dropping their special economic zone (SEZ) plans in the wake of issues related to minimum alternate tax (MAT), land acquisition and slow demand from companies.
At least three to four key developers, such as Unitech, Parsvnath and Shriram Properties, are looking to denotify or even sell their SEZ ventures.
Other developers, such as DLF, Raheja Developers and Indiabulls, are also understood to be looking at exit options.
Denotification
Shriram Properties, the Bangalore-based realty arm of the Shriram Group, is reportedly looking to sell its Gateway SEZ, a 1.3-million-sq-ft IT SEZ in Chennai for $150 million. Sources said the company plans to use the funds to clear its debt of Rs 600 crore. The IT SEZ was bought from Standard Motors in 2006. Similarly, Unitech Corporate Parks (UCP), a Unitech group firm listed in London, also plans to sell its IT SEZ in Gurgaon. The Zone comprises 3.5 million sq ft of office space. UCP, which has a 60 per cent stake in the IT SEZ, was formed to invest in commercial real estate. Unitech owns the remaining shares. The sale is expected to generate about Rs 1,100-1,200 crore, which Unitech will use to retire its debts and for expansion.
Reliance Industries has already requested denotification of Reliance Haryana SEZ Ltd, a unit of RIL. Parsvnath Infra Ltd is also thinking of surrendering its sector-specific SEZ for IT/ITeS at Sohna Road.
In its application, Parsvnath Infra had requested de-notification of the zone on the grounds that “it has not been possible to acquire some small pockets within the notified area, thereby affecting contiguity. And further extension of formal approval has been denied by the Ministry of Commerce“.
The SEZ Act was introduced in 2005 to create infrastructure and employment opportunities and foster economic growth.
Sanjay Dutt, Executive Managing Director, Cushman and Wakefield, said: “The SEZ policy was developed with a certain focus in mind. However, mid-way, the rules were tweaked, leading to confusion among investors. The economy also took a backseat, prompting companies to abandon expansion plans. Additionally, many States had no clear policy on SEZs. All these factors took away the charm of SEZs”.
MAT BLUES
Almost all industry players agreed that the imposition of 18.5 per cent MAT on SEZ developers and units, which earlier were exempted from the tax, was one of the major reasons behind the tardy progress.
The SEZ policy was tweaked in 2011 and faced its share of opposition. The Public Accounts Committee of Parliament, in its 13th report, had recommended serious reconsideration of the policy due to complaints of its degenerating into easy land-grabbing, with tax incentives benefiting only a few.
According to SEZ norms, if a particular SEZ has functional units inside the zone, the developer cannot apply for denotification. Such developers would have no option but to sell their business if they want to exit the project.
At present, of the total 558 approved SEZs, only 158 are operational.
According to Prem Chand Gupta, Rajya Sabha member, who is also on the Standing Committee on Commerce: “We have a habit of complicating the system.
Laws must be clear on rules and regulations. SEZs are mega projects and nobody can implement them on their own. They have to depend on institutional finance. The imposition of minimum alternate tax and dividend distribution tax has put an additional strain on the growth of SEZs.”