Build and Transfer (B& T) is a derivative of Build , Own , Operate and Transfer (BOOT) Model commonly used by the Developer SecLink and its consortium of contractors for financing of infrastructure projects, especially in developing countries like Africa. Build and Transfer concept can be applied to any EPC contract for constructing a Real Estate Project.

Build and Transfer EPC contracts are suitable only for EPC Contracts where:

1. All Relevant designs for construction are in Place and a start-to-finish construction schedule is possible.
2. Contract Value does not exceed 40- 50% of the Total Project Sales Value. This is to give comfort to lenders who are issuing Payment Guarantees for the project. (Please see below for more clarity)
3. Tenure of the EPC contract does not exceed 36 Months.
4. EPC contract value is a minimum of $10-15 mn upward value can go to maximum $750mn- $900mn.
5. Countries who already have Escrow Facilities by their regulatory body (For Ex- RERA) or as practice a mechanism that all sales receivables are channelled to a single escrow account and it is used to fund the contractors, development, marketing cost etc.
6. EPC contractors proposed by SecLink Group are reputed entities.

How does a B & T Contract differ from a Traditional EPC Contract.

The only key difference between a traditional EPC contract and B & T Contract is in the Mode of Payment. In a B & T contract SecLink Group does not get any progress payments but only one bullet payment on handover of the project as per the terms of the contract.

In short SecLink Group as the JV Partner in the project arranges to fund the EPC Contractor through its own credit facilities. The lump sum Payment due to SecLink Group on handover needs to be however secured by the local developer/Landowner (Other JV Partner) in form of a payment guarantee from a Bank/Financial institution usually for 100% of the EPC value. EPC B & T Contract usually has 3 components.

1. Traditional contract value.
2. Interest component borne by the development company and linked to progress payments (Variables here are currency EURO /US Dollar/INR, Bank or Institution issuing the payment guarantee and tenure of the contract).
3. Over and above the JV Profit an additional profit Rate/Interest like a small premium would be charged on the traditional contract value ranging between 6-8 % depending on contract value and on the pro rata construction drawdown.
4. Variants of this EPC (B&T Contract) are possible which are subject matter of discussion.

APPLICATION OF THE CONCEPT

How Does it work for a Real Estate Development Project in India & Advantages to the Land owner/Local Developer when they do the JV with SecLink Group.

Land Owner/Local Developer does the tie-up of JV with SecLink Group and then creates a development company along with SecLink where they put the fully paid land, Sales Escrow Account and arranges a Conditional Payment Guarantee (Verbiage Attached) from the Local or International Bank in Favour of SecLink Group guaranteeing the payment only of EPC Value subject to completion. Since the payment guarantee can only be invoked on handover of the project lower margins can be negotiated with Banks/Institutions for the following reasons:

1. Bank/ Institution is not exposed to execution risk and delays at all.
2. Bank /Institution can secure itself by escrow sale proceeds before handover and usually payment guarantee exposure will rarely exceed 30%-40% of the sales value of the project. Thus payment guarantee’s exposure can be reduced by sales proceeds with a very high margin of safety for the bank.
3. EPC contractors have the incentive to complete the project in time.
4. Overall Land Owner/Local Developer benefits by not only completing his New Project or incomplete/stuck project but also achieve better sales realisation per square feet increasing their ROI/IRR (Post splitting the profit with SecLink Group) as they can delay major sales when the project is closer to completion since they are not under pressure to sell to pay contractors to continue the construction of the project.

Advantages to the Local A Grade Bank who Issues the Payment Guarantee.

1. Fully paid title deed and the receivables escrow account with the bank.
2. Exposure is Non-Fund Based. Fee Based Income.
3. Banks can also secure mortgage business on project sales.
4. Fully collateralised LTV, approx. less than 50% assuming zero sales till completion .
5. Bank is not exposed to any Execution Risk or delays and can also stipulate additional conditions limiting the percentage of profit withdrawal done by the developer. The developer can only withdraw for the regular management, development and marketing expenses.
6. Effective exposure keeps on declining due to access to escrow sales during completion. Banks can also stipulate conditions as to reduce the payment guarantee exposure by making payments to the contractor from the sales proceeds.
7. Timely completion is more likely than a traditional EPC structure.
8. The bank can advise local developers/landowners to do a JV with SecLink to complete the construction for any existing venture where the bank has a funding exposure due to local developer’s incapability to complete the construction and has become NPA for the bank. Once the project is ready then the bank can itself exit the project by selling a completed project or refinance the property by converting it as a commercial loan where the repayment can be done through the rental income of the property.