Context:
Bengaluru Smart Infrastructure Limited (B-SMILE) is a special-purpose vehicle (SPV) set up by the Karnataka government to manage large urban infrastructure projects.
- The initial government commitment is ₹7,000 crore.
- Though open to private investment, B-SMILE will be fully state-owned.
- 90% equity: Government of Karnataka
- 10% equity: Bruhat Bengaluru Mahanagara Palike (BBMP)
What is a Special Purpose Vehicle (SPV)?
- An SPV is a legally separate subsidiary formed by a parent company to isolate financial risk.
- It is also called a Special Purpose Entity (SPE) and is bankruptcy-remote, meaning it remains unaffected if the parent company collapses.
Purpose and Uses of SPVs
- Risk Isolation: Limits financial exposure from risky ventures.
- Asset Securitization: Packages assets (e.g., loans, receivables) for resale to investors.
- Joint Ventures: Facilitates specific projects with external partners.
- Property or Infrastructure Projects: Used in real estate, renewable energy, and public-private partnerships (PPPs).
- Venture Capital: Investors pool money via an SPV for a single startup investment.
Legal Forms of SPVs
- SPVs can be formed as LLCs, trusts, corporations, or limited partnerships.
- May operate independently with their own management and finances.
Accounting and Financial Risks
- SPVs are off-balance sheet entities—their debts and assets may not appear in the parent company’s accounts.
- This can obscure the actual financial position of the parent company.
- Investors should always review SPV financials to understand hidden risks.
TH
