Questions to ask before giving away prime real estate

GFI Executives at a Government Conference at Bombay

Recently the Maharashtra Government concluded an MoU with the Bahrain based Gulf Finance House, a leading Islamic Investment Bank, for the establishment of an EDZ. The project involves acquisition of 1600 acres of land along the Bombay-Pune expressway and developing infrastructure into four economic cities: energy, telecom, software and entertainment. These "cities" will then be presumably leased out to companies wishing to set up shop. The entire project cost is estimated at $10.28B and the project is expected to be completed in about 5 years.

Whatever is happening in the SEZ business, transparency is certainly not a key feature. Just like in the case of West Bengal, the details are very sketchy. While one need not get paranoid just because a company from an Islamic country is investing, there are some questions worth asking upfront to avoid headache later.

From the bank's website:

Established on 16 October 1999 in the Kingdom of Bahrain, GFH derives its strength from its commitment to the Islamic Sharia'a philosophy of wealth management and a well-defined and broad-based portfolio of investments spread across three continents: Asia, Africa and Europe. With a paid up capital of US$ 239 million and an authorized capital of US$ 300 million, GFH has positioned itself at the cutting edge of the rapidly expanding international Islamic banking industry. During its seven years of operations, GFH has successfully launched projects and investments with an aggregate final value exceeding US$12 billion.

It must be noted that the Bank is a relatively puny player when compared to global banks. The bank has made no investment so far outside of the Gulf region. The bank has raised $630 so far for the project, the equity issue was oversubscribed and attracted wealthy investors from West Asia. The investment in the project will be almost equal to the bank's total investments since its inception.

It is not clear whether other investors were invited to bid for the project. This is prime land we are talking about and includes the area near the upcoming Navi Mumbai airport. While the Maharashtra government is thumping its chest by saying that it didn't have to invest anything in the project, they are certainly not counting the enormous administrative cost, the cost of the airport and ancilliary facilities etc. Most surprisingly, Maharashtra Government will have NO equity in the project.

It is worth asking if the Bank intends to impose restrictions for Sharia compliance. For instance, whether the bank will enforce a dress code on its employees that runs counter to the spirit of our constitution.