HUDCO for transfer of premium FAR, ad revenue to SPV to fund tunnel roads

To safeguard repayment of the loan that it is providing to build tunnel roads in Bengaluru, the Housing and Urban Development Corporation (HUDCO) has directed Bengaluru Smart Infrastructure Ltd (B-SMILE) to submit a government order transferring proceeds from premium Floor Area Ratio (FAR) and advertisement revenue from auctioning advertising rights under the new bylaws across the city, directly to the SPV.

B-SMILE is also required to open an escrow account, where both premium FAR proceeds and advertisement revenues will be exclusively deposited. “HUDCO shall at all times possess a first charge over the funds held within this Escrow account,” the letter said.

This condition is expected to hit the revenue generation potential of the newly formed five corporations in Bengaluru. Both Premium FAR and new advertisement byelaws were notified earlier this year. This year’s civic budget estimates a revenue of ₹750 crore from advertisement revenue and ₹2000 Crore from Premium FAR. This is a significant chunk of revenue that the newly formed corporations, especially the poorer ones would have been looking forward to shore up their revenues. However, the government seems to have pledged the same and taken it out of their hands even before the formation of the corporations

The Greater Bengaluru Authority (GBA) should provide documents ensuring budgetary provisions in its accounts for loan repayment and the GBA must also issue a commitment that any shortfall in revenues from FAR and advertisements, in relation to HUDCO’s repayment liabilities, will be compensated by GBA through its alternative receipts.

“In case the premium FAR and advertisement revenues are not commensurate with the projected cash flows, the agency shall ensure to provide a commitment letter from the government, duly concurred by the Finance Department, to make good the shortfall for servicing the HUDCO loan,” the letter further states.

Government share more than 40%

While the government had earlier said that the project would be financed through the Build-Operate-Own-Transfer (BOOT) model, where the concessionaire would shoulder 60% of the cost with the remaining 40% borne by the government, HUDCO’s sanction letter sets a different financial structure. As per the letter, B-SMILE will be responsible for 47.67% of the project cost, amounting to ₹8,476.47 crore of the estimated total cost.

Rules and conditions

HUDCO has also cautioned that the sanctioned loan must not be diverted to any other project. The SPV is required to submit quarterly progress reports, while HUDCO will conduct site inspections before releasing each instalment.

Confirming the development, B.S. Prahallad, Technical Director, B-SMILE, told The Hindu that they have received the sanction letter and the required documents were being prepared. “We will submit the documents after closing the tender, as certain details about the concessionaire are necessary,” he said. He also reassured that the project would not impose any direct financial burden on the public, as it has been deliberately structured to be funded through premium FAR and advertisement revenues.

The project tender, originally scheduled to close on September 3, had to be extended to September 23 following requests from prospective bidders for additional time. Nearly 11 firms participated in the pre-bid meeting, including several international companies that have tied up with Indian partners to bid for the project.