Govt plans priority status for real estate AIF

The ministry of finance along with SBI is working out a legal framework where the proposed alternative investment fund (AIF) for reviving stalled real estate projects will have the first charge on assets and cash flow of entities receiving funding. SBI and its arm SBI Capital Markets have started reaching out to other banks and financial institutions to participate in the AIF — a regulatory parlance for privately pooled wings such as venture capital, private equity, and real estate funds. As per norms, a bank can invest up to 10% of the corpus of an AIF. This may necessitate introducing changes in the Insolvency and Bankruptcy Code (IBC) to incorporate the concept of seniority of lenders which the code in its present form does not adequately recognize and the finance ministry has referred the matter to the law ministry, said FM sources. Thus, SBI can invest a maximum ₹2,500 crore in the fund — requiring other institutions to join the proposed ₹25,000-crore fund in which the government will contribute ₹10,000 crore. Giving the AIF a senior status among lenders could make it easier for other banks to invest in it. Under the plan, the fund, while lending to a company, will lay down that its seniority of charge should be part of the inter-creditor agreement. If the company fails to revive and later lands up at the insolvency court, the CoC will have to recognize the senior-most charge it has among all lenders. If the company is already under the IBC, the CoC will have to approach the AIF and accept the seniority of charge. Currently, IBC provides for generating interim finance by the resolution professional after taking approval from the committee of creditors.