Secondary SEZ market crops up

A secondary market in special economic zones seems to have come into existence as a consequence of the recent decision to cap the number of such zones at 150. Zones that have been approved are now being put on the block, and are likely to command a premium.

Evidence in this regard has just started emerging. According to government sources, an information technology SEZ, which already has the final approval, and a multi-product SEZ, which has an "in-principle" approval, have been put up for outright sale.

The approval is provided to the developing entity, which obtains land and the necessary permission, and then offers space on lease to other companies.

Since no lock-in period has been envisaged in the SEZ Act 2005, a developer of a zone is free to sell up to 100 per cent of the equity of the project company, after he has received an approval for the zone.

"The policy does not prohibit the promoter of the company from selling equity, and there is no minimum lock-in period. The policy specifies that the developer can only lease the land and not sell it," said Akash Gupt, associate director, PricewaterhouseCoopers.

According to him, foreigners that invested in real estate projects faced a lock-in period of three years, when they could not repatriate their investments.

"SEZs have been specifically exempted from this condition under the government policy," he said.

Gupt added that new buyers of SEZs would have to undertake proper due diligence, since they had to keep the land until the validity of the SEZ notification.

The commerce ministry is looking into the matter since such a situation was not visualised in the rules. "The imposition of the cap of 150 has created a situation where some interested companies, which are not likely to get an approval for a zone, have started talking to those whose zones have already been approved," an official said.