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Property Project Delays

By | INDIA | No Comments

What happens when a major construction project, made up of dozens upon dozens, if not hundreds of underlying interlocking contracts between contractors, suppliers, engineers and architects reaches a point where just one of those contracts is subject to dispute? A supplier isn’t paid or an architect won’t sign off a stage payment.

All too often the answer has been that the whole project grinds to a halt; and it’s been a major bone of contention in the construction sector for years.

Not anymore.

In a positive step aimed at boosting further growth in the construction sector the Indian Cabinet Committee on Economic Affairs (CCEE) has approved a number of measures proposed by the Niti Aayog; all of them designed to stop underlying disputes and quibbles on contractual terms from holding up completion of the much bigger construction project of which they all form part.

The package includes measures for faster settlement of disputes between contractors and government departments; the introduction of a clever provision for the deposit of a security fund in escrow (similar to an adjudication process) which will allow disputes to be settled on an interim basis with final resolution awaiting the completion of the project (so as not to delay the completion itself) and a new secured system of appeals from arbitral award where the appellant is a government department.

It is a mechanism closely modelled on procedures which have been deployed in other jurisdictions (notably the English Law ICT Contract) where experience has shown it to yield real, indeed striking results in speeding up the construction process. In the specific circumstances of the new Indian Model it should also lead to fewer funds being locked up in arbitration which have made it particularly difficult in the past for construction companies to keep up with interest payments on borrowed funds.

The fact procedures and systems of this kind are now being introduced into the Indian Construction Sector is very much to be welcomed. It can be expected to lead to still more construction activity; driven by the assurance that a whole raft of technical blocks and red tape have been removed from the process. Those involved in the Construction Sector can now expect a lot more time on Site, and not in a Court or an Arbitrator’s Office. Lawyers might not be happy with that but no doubt they’ll be able to find other things to do.

Commenting on the new regulations, Finance Minister Arun Jaitley said that he expected them to:

“……..pump a lot of liquidity into the sector, activate real estate and infrastructure projects which have been stranded for some time and support the whole process for dispute resolution in relation to construction and real estate.”

And the Reserve Bank of India agrees:

“Given the significant multiplier effect the construction sector has on the economy, these measures are expected to give a major boost to economic growth.”

They are both likely to be right, if only on the basis of the experience in other jurisdictions as referred to above.

Red Ribbon CEO, Suchit Pannose thinks:

“Anyone investing in property will be familiar with the horror stories which abound of perfectly good and promising plans for development being bogged down and often killed off by litigation and contractual disputes sparking off at an interim stage of the development. So I welcome these new provisions from the Indian Government.

They have the twin virtues of seeking to speed up the whole construction process which can only be a good thing and freeing up funding, too often locked up in lawyers’ bank accounts whilst disputes rumble on, seemingly endlessly.

And of course we are living on a crowded planet; serious shortages of housing stock on the subcontinent are a matter of persistent and justified public concern. Anything which smooths out the process of releasing further stock has to be a good thing.

It should all add to the existing spectrum of investment opportunities.”

We can expect further growth in the Indian Construction and Property Sectors to follow.

Renewable Energy

By | INDIA | No Comments

India’s Prime Minister, Narendra Modi has committed his Government to installing at least a further 100 GW of Solar Capacity, together with the complex base of supporting infrastructure such a huge project requires, by 2022 at the latest. It is a seriously challenging target; and one can’t help but be reminded of the debacle in Indonesia following the similar policy commitments made by MEMR in 2014; commitments which were, of course, stopped in their tracks by the Supreme Court just as they were about to be rolled out. We are still waiting for the Indonesian Government to issue its first quotas.

But the situation is looking a lot more positive in India because interest in all forms of alternative energy has been growing strongly since 2014 and this week Gamesa Corp, which is, by market share, the largest wind turbine manufacturer in India, announced that it is to start build out on its first Wind/Solar Project on the Subcontinent within the next two months; and Suzion Energy is also expecting to get more active in Photovoltaic generation: announcing that it is expecting to become a lot more active in Photovoltaics and Hybrids in the first quarter of next year.

Hybrids are important to the ambitious Solar Programme which is now on foot on the Subcontinent; they provide a robust and complementary “kicker” platform for the Core Solar Model, the two sources combining technologies and sharing grid capacity in a way that developers believe will provide a realistic basis for the expected growth in overall capacity. That, no doubt, is why the Indian Government has also issued a new Draft Policy Paper committing itself to a target for Hybrid Production of 10 GW by the same 2022 Deadline in place already for Solar. It might only be a tenth of the equivalent Solar Target, but it should be enough to ensure the Solar Platforms get an additional catalyst for growth to achieve the full ambition of the Government’s Policy Objectives.

And, of course, it’s not just a numbers game.

On 6 September the G20 issued its Hangzhou Communique which is likely to accelerate still further India’s push towards cleaner energy generation. You don’t need the insight of Cassandra to work out that targeting of that kind is bound to drag Solar Rollout along with it; and if anything the target figure in the Government’s Solar Policy might in the fullness of time start to look too light.

All of which may help to explain the timing of this week’s announcement from Gamesa.

The Chief Executive Officer of Gamesa India, Ramesh Kymal, was obviously in no doubt: his company is targeting a perfect storm for growth.

And just look at the international context. Over the last year alone Toshiba and Mitsui announced the completion of a solar project in Japan’s Aichi Prefecture and in Queensland Windlab and Eurus Energy are building out a large scale Solar and Wind hybrid platform. India is by no means alone in looking to Hybrid Generation as the ideal complement for Solar Growth.

Finally, and not unimportantly, it is worth remembering too that India’s topography is ideally suited to the new model for growth. Rajasthan, Gujarat and Madhya Pradesh all have the perfect geographic conditions for Solar Projects. Jain Devansh of Inox told Bloomberg this month that Inox is just waiting for MNER’s Draft Policy to be finalised before moving forward with plans for alternative energy rollout in all three States.

CEO of Red Ribbon, Suchit Pannose said:

“I am obviously glad to see that the Government’s Policy is being given some much needed traction by these recent announcements; although my feeling is that there is still quite a lot of work to done in thinking through issues such as optimal transmission systems, available substation capacity and general issues on return on investment. If it is possible to get all of that right, which I am confident it is with a little insight, then it may well be that Hybrid as a whole could have the potential to generate stimulate even greater returns on Photovoltaic Production..

The G20 Communique earlier this month will obviously set the tone towards cleaner energy initiatives; specifically the joint protocol issued by the USA and China.

It seems to me that India is certainly on the right track and has fixed on the right model.”

ICICI Prudential: India’s First Insurance IPO

By | INDIA | No Comments

ICICI Prudential Life Insurance Co. Ltd’s initial public offering (IPO) is the first in the Indian insurance sector. With demand for shares running at 10.5 times availability (ICICI Bank will sell 181.34 million shares in the insurance company), this values the insurer at Rs 47,950 crore ($7.2 billion).

Suchit Punnose comments on ICICI Prudential IPOOur CEO, Suchit Punnose, commented on this, saying:

“the level of over-subscription did not surprise him. As the economy grows in India and the population movement from rural to urban areas continues, the expectations of the population change. They want the lifestyle they see others have so more people are looking to invest in funds that will grow their wealth. They know that they cannot get the returns they want, to pay for the lifestyle they desire, simply by putting their money in the bank.

As the population ages, the pressure on the younger generations increases. Families in India are having less children now than thirty years ago*, and there are few signs of this changing. Families are recognising the need for investment, for life assurance and for other wealth creation and planning solutions. Companies such as ICICI Prudential are providing these and so will be prime targets for investors when opportunities such as this IPO appear.

Insurance is just one of the needs of the Indian population, alongside housing, infrastructure, entertainment, hospitality and consumerism. Indian IPOs have raised over $5billion already this year across a range of companies providing the needs for the changing Indian population. The investment is coming from around the world, as well as from high net worths and institutional investors within India. Why would they not take advantage of the growth?”

*OECD figures show total fertility rates in India have dropped by 40% since 1980

Why are Hybrids set to give added drive and growth in Solar Platforms?

By | UNITED KINGDOM | No Comments

India’s Prime Minister, Narendra Modi has committed his Government to installing at least a further 100 GW of Solar Capacity, together with the complex base of supporting infrastructure such a huge project requires, by 2022 at the latest. It is a seriously challenging target; and one can’t help but be reminded of the debacle in Indonesia following the similar policy commitments made by MEMR in 2014; commitments which were, of course, stopped in their tracks by the Supreme Court just as they were about to be rolled out. We are still waiting for the Indonesian Government to issue its first quotas.

But the situation is looking a lot more positive in India because interest in all forms of alternative energy has been growing strongly since 2014 and this week Gamesa Corp, which is, by market share, the largest wind turbine manufacturer in India, announced that it is to start build out on its first Wind/Solar Project on the Subcontinent within the next two months; and Suzion Energy is also expecting to get more active in Photovoltaic generation: announcing that it is expecting to become a lot more active in Photovoltaics and Hybrids in the first quarter of next year.

Hybrids are important to the ambitious Solar Programme which is now on foot on the Subcontinent; they provide a robust and complementary “kicker” platform for the Core Solar Model, the two sources combining technologies and sharing grid capacity in a way that developers believe will provide a realistic basis for the expected growth in overall capacity. That, no doubt, is why the Indian Government has also issued a new Draft Policy Paper committing itself to a target for Hybrid Production of 10 GW by the same 2022 Deadline in place already for Solar. It might only be a tenth of the equivalent Solar Target, but it should be enough to ensure the Solar Platforms get an additional catalyst for growth to achieve the full ambition of the Government’s Policy Objectives.

And, of course, it’s not just a numbers game.

On 6 September the G20 issued its Hangzhou Communique which is likely to accelerate still further India’s push towards cleaner energy generation. You don’t need the insight of Cassandra to work out that targeting of that kind is bound to drag Solar Rollout along with it; and if anything the target figure in the Government’s Solar Policy might in the fullness of time start to look too light.

All of which may help to explain the timing of this week’s announcement from Gamesa.

The Chief Executive Officer of Gamesa India, Ramesh Kymal, was obviously in no doubt: his company is targeting a perfect storm for growth.

And just look at the international context. Over the last year alone Toshiba and Mitsui announced the completion of a solar project in Japan’s Aichi Prefecture and in Queensland Windlab and Eurus Energy are building out a large scale Solar and Wind hybrid platform. India is by no means alone in looking to Hybrid Generation as the ideal complement for Solar Growth.

Finally, and not unimportantly, it is worth remembering too that India’s topography is ideally suited to the new model for growth. Rajasthan, Gujarat and Madhya Pradesh all have the perfect geographic conditions for Solar Projects. Jain Devansh of Inox told Bloomberg this month that Inox is just waiting for MNER’s Draft Policy to be finalised before moving forward with plans for alternative energy rollout in all three States.

Red Ribbon CEO, Suchit Punnose said:

I am obviously glad to see that the Government’s Policy is being given some much needed traction by these recent announcements; although my feeling is that there is still quite a lot of work to done in thinking through issues such as optimal transmission systems, available substation capacity and general issues on return on investment. If it is possible to get all of that right, which I am confident it is with a little insight, then it may well be that Hybrid as a whole could have the potential to generate stimulate even greater returns on Photovoltaic Production.

The G20 Communique earlier this month will obviously set the tone towards cleaner energy initiatives; specifically the joint protocol issued by the USA and China.

It seems to me that India is certainly on the right track and has fixed on the right model.

 

India Making Phenomenal Progress with Renewable Energy Capacity, Globally

By | UNITED KINGDOM | No Comments

Chandra Raman, Chief Executive Officer of renewable energy developer, ARMAEC, talks through Indian government policies that are spurring growth in the renewable energy sector and what this means for investors:

Two of the measures introduced by the government to spur the growth of Indian renewable energy production are the feed-in tariff (FIT) and the renewable portfolio obligation (RPO).

Under FIT, a fixed tariff is guaranteed to the power producer for a certain number of years. For him or her, this is desirable as it ensures assured income that eliminates market risk. Furthermore, through this initiative power producers are able to raise finance easily as a guaranteed income makes their business far more attractive to investors.

Under the RPO, an electricity distribution company (DISCOM) is required to purchase a certain percentage of its total distributed electricity from renewable sources thereby stimulating the market. This is similar to China’s model of penalising coal-based electricity producers unless they have an economically viable long-term renewable energy policy or give robust monetary incentives for the generation of renewable energy.

By making the purchase of renewable energy compulsory the Indian Government ensures that renewables enter the market, price-in and become competitive. This stimulates the growth of renewables throughout the energy market in India and ensures they are distributed at a competitive prices to consumers.

These are two examples of policy instruments that are creating an effective renewable energy market for all participants. Establishing these policies is essential for India as they will enable the Government to meet the energy demands of a growing nation. For investors, these policies remove supply-chain bottle necks, stimulate buying and selling, as well as remove systematic risk.

As India continues to develop it’s renewable energy industry, investors are increasingly beginning to get excited about the sector. Oil marketing companies Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and the Hindustan Petroleum Corp. Ltd are looking at expanding their renewable energy plans; state-run mining major Coal India has announced that they will develop solar power plants of 600 MW capacity in four states; and renewable energy investment from Japan, the US and China is at an all-time high.

The record-setting increase in investments is proof that renewable energy is becoming ever more central to low-carbon lifestyles of environmentally conscious people. It is valuable in societies where reliable energy can offer improvements in quality of life, economic development and environmental sustainability and the continued and increased renewable energy investment is not only good for the people and planet, but is a key element in achieving international targets on climate change and sustainable development.

Countries such as India have realised the potential of renewable energy to rapidly power their economy especially in the backdrop of a sluggish global economy. To find our more about Red Ribbon’s project ARMAEC that develops wind farms to supply renewable energy, visit the ARMAEC website, here.

Telangana shows strong growth in local tax yields

By | INDIA, UNITED KINGDOM | No Comments

There’s an old saying amongst bankers: there aren’t any fleas on a dead dog, and even for those who take a less than charitable view of State Taxes, there is surely no better sign of a strengthening in the Indian Property Market than its local tax yield. But don’t let’s look at the usual culprits to test that thesis, because we all know about Mumbai and Delhi already; take a look further south instead at Telangana, newly constituted as a State as recently as 2014 and still taking its first steps as the twelfth largest state on the subcontinent. Its reported yields from property and building transactions suggests strongly that the real estate market both there and across India generally is getting stronger still.

Because, in India, the dog isn’t even poorly, never mind dead.

Telangana this week reported a record growth in net revenue from stamps and registration fees on new property transactions: up by a whopping 32.1% at Rs 1.935.3 Crore. It’s a report that any CFO or a major public company would be proud of.

And according to the Chief Minister’s Office of Telangana, it’s all down to an increased ease of doing business in the real estate sector; the spin offs from major new infrastructure projects in the State, including substantial infrastructure and power projects which inevitably act as a honey pot for new investment and the core catalyst of single window clearances.

Single window clearances can, of course, have a uniquely destructive effect on trade. We might remember the single window clearance point operated by the French State in Poitiers in the 1980’s which required the Japanese company JVC to export all of its video machines through a single customs post which was (deliberately) configured to make it virtually impossible to secure anything like a normal import throughput; one French customs officer with a manual rubber stamp and a flip chart saw to that, which was why the procedure was rightly seen for what it was: a restraint on trade rather than a legitimate protection against illicit imports.

But that’s all changed now, and India is reaping the benefits.

Nowadays, single window clearance is synonymous with increased efficiency through time and cost savings for traders in their dealings with governmental authorities. The relevant clearances and permits for a property transaction can now be obtained through a single agency which streamlines what can otherwise be a frustrating multi-agency process.

And from the recent statistics coming out of Telangana, it’s obviously working. It has all led to what has been described as a “hectic growth” in the real estate sector.

Telangana has now set a full year target for stamps and registration fee yield at Rs 4,291.99 Crore and, to their great credit, 45% of this full year target had already been achieved by September of this year. In all, Telangana reported 5.76 lakh transactions of land and building transactions during the first six months of the current fiscal year; and with a resulting air which is perhaps becoming for such a young State, its CMO has predicted that where Telangana leads, others will follow.

As recently as the end of last month (September 2016) Wang Jialin, China’s richest man and leading property magnate, warned that through a combination of an unseemly rate of credit expansion, government spending rates and internal “strictures”, the Chinese Property market was facing the “biggest bubble in history”.

India has none of that baggage and can show the way forward for how a properly modulated property market can thrive.

Because, after all, there aren’t any fleas on a dead dog.

Find out what Theresa May thinks of India’s infrastructure post-Brexit

By | INDIA | No Comments

British Prime Minister, Theresa May, visited India at the invitation of Prime Mister Modi on 6th November; and infrastructure was high on her agenda.

This was her first bilateral visit outside Europe after taking over as Prime Minister in the aftermath of the Brexit Referendum, and it was self avowedly intended (by both politicians) to strengthen existing strategic partnerships between the two countries.

In its Press Release issued on 7th November the British Government emphasised the central role to be played by infrastructure investment:

United Kingdom finance and expertise will help deliver key Indian priorities like infrastructure development, renewable energy and future smart cities….The two Prime Ministers agreed to accelerate the deepening partnership between the United Kingdom and India in financing investment in Indian infrastructure.”

Is that all just pie in the sky?

Well, in a word: no.

Over $1 Billion of Rupee denominated Bonds (INR 7,500 crore) have been issued in London since July 2016 (a mere four months); The National Highways Authority of India and the Indian Railway Finance Corporation will each be issuing Rupee Denominated Bonds in the next few months and Indian Energy Efficiency Services and the Renewable Energy Development Agency will be issuing so-called Green Bonds (including rupee denominated Masala bonds) on the London Capital Markets over “the next few weeks”. Technical assistance is already being provided as well for the redevelopment of Varanasi Railway Station as part of the Varanasi Smart City Development Plan.

But the really encouraging this is that all this new funding, energised by a raft of new policy initiatives will key in closely with what is already an admirably focused and managed Indian infrastructure climate.

Just take a couple of examples.

First, on 11th November, Indian Road Transport Minister Nitin Gadkari announced plans for an investment programme of Rs 25 Lakhe Crore over the next five years; his ministries have already awarded contracts worth Rs 3.17 lakh crore in roadworks on the subcontinent, where the pace of construction is currently 22 km per day, targeted to rise to 40km per day. The highways construction target for the current fiscal year is 15,000 km of which 3,600 had been completed by the end of October.

Then, on 10th November, the Indian Railway Minister, Suresh Prabhu, announced an investment of over Rs 5,000 crore to redevelop Guwahati Station where the plans will include construction of an all-new 12 km long section of elevated track. Indian Railways is to enter into a new joint venture with the state government so as to implement the project: “The three stations in Kamakhya, Guwahati and New Guwahati will be connected to metro line and the entire project will contribute to the smart city project”, Prabhu commented when launching the scheme.

The United Kingdom has its own foreign policy and domestic issues to grapple with in the post Brexit Britain, and in many ways it is unsurprising that it should have reached out so soon to India, one of its oldest and most important trading partners, as it seeks to nurture links with the wider world beyond Brussels; but these things have a certain chemistry of their own. The sheer scale of the new finance which is to be raised through bond issues of the type signalled by the two Governments this month, would not in itself be enough to kick start the infrastructure sector on the subcontinent; but it doesn’t need kick starting, it is already moving forward and those having stewardship of its planning certainly can’t be accused of lacking ambition.

And capital funding on substantial scale contemplated by London and New Delhi this month really can then make a difference.

Red Ribbon CEO, Suchit Punnose said:

I don’t think it was any surprise to learn that the British Prime Minister chose to visit India on her first major overseas trade mission following the European Union Referendum result in the summer. India is one of Britain’s oldest and most reliable trading partners; and it is not just inward investment that matters, India is the third biggest source for investment into United Kingdom Industries, Jaguar Cars being a prime example.

But what I think is really important from the Governmental Statements following the mission is the emphasis that has been placed by both Prime Ministers on opening up access to the London Capital Markets by way of fresh infrastructure funding.

India already has the resolve and the planning to complete major new infrastructure projects over the next five years. Fresh capital sourcing of that kind, especially in rupee denominated bonds, can only give a further impetus to the process.

Red Ribbon

At Red Ribbon we understand that the transition towards a resilient global economy will be led by well-governed businesses in mainstream markets, striving to reduce the environmental impact of their production processes on society at large and on the environment as well.

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