NHAI’s second InvIT to be delayed due to volatile markets

The National Highways Authority of India (NHAI) is set to delay the launch of its second infrastructure investment trust (InvIT) by another couple of months due to weakness in the Indian stock market and lack of risk appetite seen from foreign investors in the wake of the Russia-Ukraine war, senior company officials told Moneycontrol.

The road construction body had planned to raise Rs 3,000 crore through the second InvIT to monetise two to three projects. The InvIT was originally planned for January but it was delayed following the outbreak of the third wave of COVID-19. It was expected to have hit the market in March.

“Market sentiment is very weak at the moment and foreign investors have adopted a wait and watch approach. Some foreign investors have also shown some scepticism about investing in Indian entities due to India’s relationship with Russia,” a company official said.

This official added that NHAI is likely to go to the market by the end of April or May, by when the company expects the situation to have normalised.

An InvIT is an investment trust that works like a mutual fund and is regulated by the Securities and Exchange Board of India (SEBI). The government has identified InvITs as a way to attract large institutional long-term investors. InvITs typically own, operate, and manage operational infrastructure assets. In this instance, tolled highways that are already in use are assigned to InvITs. Returns from operating such assets are distributed as dividends to investors in an InvIT.

Foreign institutional investors are among the key investors in InvITs, often as anchor investors. Canada Pension Plan Investment Board and Ontario Teachers’ Pension Plan Board were the anchor investors in NHAI’s first InvIT launched in November 2021, holding a 25 percent stake each.

Anchor investors are institutional investors who are allotted shares directly by the company and are bound by a lock-in period since they get a confirmed allotment of a company’s shares.

NHAI had raised more than Rs 5,000 crore from its first InvIT which had a portfolio of five operating toll roads with an aggregate length of 390 km across Gujarat, Karnataka, Rajasthan, and Telangana. NHAI has granted new concessions of 30 years for these roads.

Debt Reduction

The InvITs are expected to help NHAI to lower its reliance on debt for financing construction and expansion of highways.

The highway developer’s debt stood at Rs 3.44 lakh crore at the end of January 2022, against Rs 24,188 crore in 2014-15, a 14-fold rise in less than seven years. The government is now looking to reduce NHAI’s debt to Rs 1 lakh crore by 2024-25.

As part of the budget for 2022-23 as well, the government has projected that NHAI’s internal and extra-budgetary resources (IEBR) will fall to around Rs 1 lakh, from Rs 65,000 crore in 2021-22. IEBR constitutes funds raised by NHAI by way of profits, loans, and equity.

The road authority is looking to offer around 25 projects worth Rs 45,000 crore under the InvIT model. NHAI InvITs constitute a platform to monetise roads over the next three to five years, a company official said.

Proceeds raised from InvITs are not counted as debt as the company launching the InvIT does have to pay a fixed amount as returns. Similarly, as the company launching the InvIT does not dilute any of its shares while raising funds through an InvIT, it does not count as equity either, market experts said.