Maadhav Poddar
Infrastructure investment trusts (InvITs) of late have been attracting a lot of attention in India. For the uninitiated, InvITs are trusts, similar to mutual funds listed on a stock exchange, which raise funds from investors, acquire income yielding infrastructure assets, manage such assets and distribute regular yields to investors under a SEBI-regulated framework.
InvITs can be privately placed or public – Both the formats have to be listed on an Indian stock exchange. While privately-placed InvITs can raise funds only from institutional investors and have relatively relaxed investment conditions, the public ones can do so from retail as well as institutional investors and have more diversified and low risk investment conditions. There is also a third format recently introduced by SEBI, which is a privately placed and unlisted InvIT. However, in this article, given the context, we have focussed more on public listed InvITs.
While InvIT regulations were introduced by SEBI in July 2014 and related tax regulations through Budget 2015, InvITs as a product did not really take off until 2017. However, since 2017, there has been consistent activity in this space.
| Name | Asset | Timing |
| IRB InvIT Fund | Roads | 2017 |
| Indigrid | Transmission towers | 2017 |
| Ind Infravit | Roads | 2018 |
| Orient Infra Trust | Roads | 2019 |
| India Infrastructure Trust | Gas Pipeline | 2019 |
The Indian government is keenly exploring InvITs as a possible means to monetise its infrastructure assets, perhaps because of the myriad benefits it brings for all the stakeholders involved while contributing to infrastructure development. Government bodies such as NHAI and PGCIL (Power Grid Corporation of India) have been experimenting with the InvIT route to monetise their road and power transmission assets, respectively.
According to recent media reports, while the proposal to monetise roads and highways through the InvIT route has been approved by NHAI, it is awaiting Cabinet approval. This InvIT is most likely to be a public InvIT, having private participation as well, and is expected to be cleared for implementation in the latter half of 2019, according to the reports.
While action on the ground is more visible now, the idea of use of InvITs for monetisation of such assets has been under consideration for a couple of years. The late Arun Jaitley, the then finance minister, in his Budget Speech of 2018 had said: “The government and market regulators have taken necessary measures for development of monetising vehicles like InvIT and Real Investment Trust (ReIT) in India. The government would initiate monetising select CPSE assets using InvITs from next year.”
More specifically, in the context of roads and highways, he added: “To raise equity from the market for its mature road assets, NHAI will consider organising its road assets into special purpose vehicles and use innovative monetising structures like toll, operate and transfer (TOT) and infrastructure investment funds (InvITs).”
There have been media reports in the recent past, citing that NHAI is under financial stress and its toll revenues may not be sufficient to service interest payments on its financial obligations. The Prime Minister’s office (PMO) had also written a letter to NHAI in August 2019, suggesting discontinuing construction of roads by NHAI and encouraging the private sector to take over the running of completed projects.
The idea is perhaps to overcome the unplanned and excessive expansion of roads and high costs for land acquisition and construction being incurred by NHAI. One of the suggestions to NHAI was also to monetise its existing assets through InvIT.
Given the ambitious Bharatmala project for providing seamless connectivity of interior and backward areas and borders of the country, NHAI has a huge task ahead to achieve. The proposed InvIT will surely provide the much-needed capital for this programme and help the state-owned entity.
While NHAI has also been looking at other modes for financing such as ToT, collaborating with NIIF (National Investment and Infrastructure Fund), issuance of bonds to LIC and central budgetary allocations, given the ambitious target of expansion of roads and highways the government has set for itself, InvITs could still play a very significant role.
The proposed InvIT should help in attracting long-term and patient capital from foreign investors, who have shown a high degree of interest in other InvITs listed in India. In fact, InvITs have attracted foreign investors who had hitherto not invested in India. These foreign investors are typically pension funds, sovereign wealth funds and insurance companies which are hooked to the advantages InvITs offer in terms of corporate governance, stable long-term returns because of mandatory distribution rules, lower risks, high quality assets and tax benefits on income distributions.
The InvIT should also provide a breather to the Indian banking sector by providing an aid to refinance existing high cost debt of NHAI with long-term low-cost capital from investors and help banks free up or reduce loan exposure to the road builder. It’s seen to provide an efficient and optimum structure for financing and re-financing of road and highways projects and free up NHAI’s capital for reinvestment in other avenues.
A successful listing of such an InvIT by a marquee government body like NHAI could significantly boost investor confidence, which would help catalyse more InvITs in India, meaning more foreign capital.
Given the potential benefits, the proposed InvIT by NHAI is the next big thing in the Indian landscape and should play a pivotal role in propelling infrastructure growth, contributing towards realisation of the dream of a $5 trillion economy.
Maadhav Poddar is Tax Partner, Infrastructure and Real Estate, EY India. Views are personal.
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