New Funding Avenues For A Better Olympic Tally

As the second most populous country in the world, India won only 2 medals at the recently held Rio Olympics. Compared to us, the U.K. won 67 medals, China won 70 medals and the USA won 121 medals.

Surely there is no lack of talent in our country, evidenced by the tremendous potential showcased by the Indian Olympians in Brazil. Political apathy coupled with inadequate sporting infrastructure and training facilities seem to be the two main causes for our sportspersons not realising their optimum potential.

As Abhinav Bindra tweeted, “Each medal costs the UK 5.5 million pounds.”

Can Corporate India Step Up?

In order to boost the sports sector in India, the Government has expressed its political will to make India a sporting superpower by instructing industry associations such as CII, FICCI and ASSOCHAM to encourage their members to take steps towards making investments in this sector. It has also included construction and maintenance of sports infrastructure within the purview of the corporate social responsibility rules under the Companies Act, 2013 to encourage companies to spend towards sports promotion.

Cheaper Funding For Sports Infrastructure

In a welcome move, which will provide impetus to the dismal sports infrastructure sector in the country, the Department of Economic Affairs has included “Sports Infrastructure” under the category of “Social and Commercial Infrastructure” in the Harmonised Master List of Infrastructure Sub-sectors (Harmonised List).

The term “Sports Infrastructure’ in the Harmonized List includes provision of
(a) sports stadia, and
(b) infrastructure for academies for training or research in sports and sports related activities.

The “infrastructure” status accorded to sports stadiums and sports academies will confer benefits to this cash-strapped sector in the form of easier access to cheaper and long-term loans from a variety of sources.

Go For Green

Indian entities engaged in the sports infrastructure sector will now be eligible to raise loans from foreign lenders under the external commercial borrowings (ECB) route.

Under the ECB guidelines, they can raise

• mid-term infrastructure loans denominated in foreign currency with a minimum average maturity of 3 or 5 years.
  
• long-term infrastructure loans denominated in foreign currency with a minimum average maturity of 10 years.
  
• rupee denominated mid-term infrastructure loans with a minimum average maturity of 3 or 5 years.
  

Such entities will be eligible to raise an amount of up to $750 million per financial year without any approval of the Reserve Bank. Furthermore, subject to certain conditions being met, they can also avail ECBs for the purpose of refinancing rupee loans availed by them for capital expenditure, from domestic banks.

Dear FPI, What About Investing In Sports?

Indian companies engaged in sports infrastructure will also be able tap funds from foreign portfolio investors registered with SEBI. FPIs are permitted to invest in listed as well as unlisted non-convertible debentures (NCDs) issued by Indian infrastructure companies. This may be an attractive option for raising debt by Indian companies as the regulatory framework for issuance of NCDs to FPIs offers considerable flexibility to Indian issuers on the terms that can be offered to NCD holders.

Opportunity To Repair, Upgrade Infrastructure

Following the liberalisation of the norms applicable to infrastructure debt funds, an infrastructure debt fund, irrespective of whether it is set up as a NBFC or a mutual fund, can now also invest in those infrastructure projects in sectors where there is no presence of a project authority. However, such investment can be made only in those infrastructure projects which have commenced operations and have completed satisfactory commercial operation for a period of at least 1 year. Therefore, existing sport stadia and academies which are in dire need of repair, upgradation, expansion and modernisation can explore this avenue for raising immediate funds.

A Sports InvIT?

As per the SEBI (Infrastructure Investment Trusts) Regulations, 2014, an infrastructure investment trust (InvIT) can invest in infrastructure projects in the sectors identified in the Harmonised List. Therefore, InVITs could be set up for the purpose of investment in, inter alia, sports infrastructure projects and could prove to be a lucrative alternate to traditional modes of raising finance and providing liquidity to the cash strapped sports infrastructure businesses.

The Fine Print

However, there are some ambiguities in how “sports infrastructure” has been defined. For instance, it is unclear whether “sports infrastructure” will also cover activities such as setting up of private clubs offering, inter alia, sport facilities or construction of state-of-the art gymnasiums (including fitness or yoga studios). It will also be interesting to see what is intended to be brought within the ambit of “sports related activities”.

The global sports economy is a multi-billion dollar global industry and at an international stage, the success of an athlete is a culmination of the combined and concerted efforts of a team of dedicated professionals such as coaches, trainers, doctors, nutritionists, fitness experts and analysts which work in tandem with the athletes. A befitting example of this is the instance of Pullela Gopichand’s Badminton Academy, a state of the art training facility of international standards which has already produced two Olympian medallists since its inception in 2008.

The abovementioned regulatory changes, are much needed to give a fillip to the beleaguered sports industry and incentivise it enough to attract not only private funding required to build world class infrastructure and training facilities, but also to attract talented human resources required to provide support to our gifted sportspersons. With this regulatory amendment, coupled with appropriate political support, we can hope for the game to change in India.

Aashit Shah is a partner at leading law firm J Sagar Associates. Megha Saraf, Senior Associate, JSA also contributed to this article.

The views expressed here are those of the author’s and do not necessarily represent the views of BloombergQuint or its editorial team.