GuarantCo Guarantees for Development

Description:

In late 2009, GuarantCo joined FMO, Deutsche Bank and Cordiant Capital in a $US65m equivalent facility in rupees for Ackruti City Limited (ACL), to rehabilitate up to 30,000 families currently living in Mumbai slums. GuarantCo’s share was just over 30%.

Nearly half of Mumbai’s 15m population lives in slums without security of tenure or basic amenities such as clean drinking water, safe electricity or sanitation. To tackle this, the regional government developed a community-led scheme where local housing associations of slum dwellers partner with a private developer of their choice to resettle families into modern flats, on the same site wherever possible. The flats are on average 50% larger than the slum dwellings they replace, and include basic amenities like clean drinking water, safe electricity and sanitation. The developer provides the flats free of cost (together with an endowment to maintain common facilities such as lifts), in return for the right to develop and sell an area equivalent to that of the new flats. The balance freed up land is returned to the municipal/ state authorities, and is used for building urban infrastructure such as roads, schools etc.

ACL were in the process of partnering with a number of housing associations for rehabilitation projects when the credit crunch hit. ACL’s access to finance vanished as banks switched off lending to the property sector. This was exacerbated by India’s banking authorities who, fearing a property bubble, had already discouraged banks lending to the sector. Property prices crashed 25% and buyers became more conservative which meant that ACL’s other source of funding, off-plan presales, also dried up. As a result, ACL were faced with the prospect of stopping or stalling their slum rehabilitation projects and the $US65m facility provided was essential to enable the projects to continue.

Slum redevelopment is a complex issue and it is essential not only that it is community led but also that assistance is provided to help families successfully adapt to new ways of living. Extensive and detailed social due diligence was carried out by FMO to ensure best practice is followed, and that the interests of slum dwellers are protected.

The project, which is one of the largest slum redevelopments undertaken in the public/private sector, will result in approximately 150,000 individuals being rehabilitated from slums into permanent, legal housing. The rehabilitation will improve the slum dwellers living conditions in terms of health, education and employment. The projects will also contribute to the economic redevelopment of the area with construction of commercial & residential properties for sale.