Manifest pedagogy: Invits are a new instrument along with other innovative tools such as asset recycling through toll operate toll, REITs and others. More importantly, they are a cog in the monetisation of public key infrastructure and important for a roadmap towards spending 100 lakh crores on infrastructure in the medium term.
In news: Cabinet has authorised NHAI to set up InvIT to monetise national highways.
Placing it in syllabus: Infrastructure
- What is InvIT?
- Examples of InvIT
- NHAI asset monetisation
- Invit by NHAI
What is InvIT?
- An Infrastructure Investment Trust (InvITs) is Collective Investment Scheme similar to a mutual fund.
- It enables direct investment of money from individual and institutional investors in infrastructure projects to earn a small portion of the income as return.
- It is designed as a tiered structure with Sponsor setting up the InvIT which in turn invests into the eligible infrastructure projects either directly or via special purpose vehicles (SPVs).
- The InvITs are regulated by the SEBI (Infrastructure Investment Trusts) Regulations, 2014.
- The infrastructure company interested in getting funds from the public will form trust and then appoint an investment manager who will be responsible for how the assets and investments of the InvIT are managed.
- There is also a project manager which actually executes the projects.
- It is overseen by the investment manager.
- The company will also appoint a trustee, who has to ensure that the functions of the InvIT, investment manager and project manager comply with Sebi rules.
- InvITs are listed on exchanges just like stocks.
Examples of Invit:
- IRB InvIT Fund, the first InvIT to be formed in 2017, is sponsored by IRB Infrastructure Developers Limited, which primarily intends to own, operate and maintain a portfolio of six toll-road assets in the states of Maharashtra, Gujarat, Rajasthan, Karnataka and Tamil Nadu.
- The InvIT of L&T Infrastructure Development Projects Ltd (L&T IDPL) is called IndInfravit Trust.
- The India Grid Trust (IndiGrid), sponsored by Sterlite Power Grid Ventures Limited, was created in 2016 to acquire operating power transmission assets.
- It is India’s first infrastructure investment trust in the power sector.
- IndiGrid owns 16 independent revenue-generating elements across 9 states in India.
- L&T IDPL is only the third firm to take the InvIT route to monetize some of its operational projects and is the first to raise funds through private placement solely from institutional investors.
- Oriental InfraTrust is an InvIT sponsored by Oriental Structural Engineers Private Limited (OSE) and it’s subsidiary Oriental Tollways Private Limited (OTPL) which is one of the leading construction companies.
NHAI asset monetisation:
- The National Highways Authority of India (NHAI) is set to raise more than ₹85,000 crore by fiscal year 2025 through the Toll-operate-Transfer (ToT) model and InvITs.
- Under the ToT model, long-term concessions for collecting toll revenues are auctioned to the highest bidder.
- InvITs and ToT model are more attractive for investors as they don’t have to build an infrastructure project from scratch.
- The move is set to improve the operational performance of NHAI.
- After the completion of the Bharatmala Pariyojana, NHAI would be more focused on road asset management, including asset monetization, contract management, operation, and maintenance of existing highways with capacity augmentation.
- NHAI is working on raising long-term finance from banks by securitizing the user-fee receipts from toll plazas as an alternate mode of asset monetisation.
- It is working on an investment model of floating a special purpose vehicle (SPV) for value capture financing in respect of greenfield projects.
- NHAI has signed an MoU with the National Investment and Infrastructure Fund (NIIF) for formation of an SPV with equity contributions from institutional financial investors.
- Debt will be raised by the SPV to ensure off-balance sheet funding of projects and construction risk will be borne by NHAI.
- Saudi Arabia has offered to invest $100 billion in India’s infrastructure sector and a portion of this funding would be invested in this proposed SPV.
InvIT by NHAI:
- The Union Cabinet has approved to authorise the NHAI to set up InvIT to monetise completed national highways that have a toll collection track record of at least one year.
- NHAI intends to unlock their value and offer attractive schemes to private players to invest in construction of national highways.
- The InvIT guidelines would be issued by the SEBI and NHAI will reserve the right to levy toll on the identified highway.
- The objective is to mobilise additional resources through capital markets.
- NHAI would need adequate funds to complete the projects under “Bharatmala” within the prescribed timeline.
- 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.
- These foreign investors are typically pension funds, sovereign wealth funds and insurance companies.
- The InvIT provides a breather to the Indian banking sector by helping banks free up or reduce loan exposure to NHAI.
- InvIT as an instrument provides greater flexibility to investors and is expected to lead to the creation of specialised O&M (operation and maintenance) concessionaires.
- It attracts patient capital to the Indian highway market which leads to investment in assets which provide long-term stable returns.
- InvITs offer advantages 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.
- A successful listing of InvIT by a government body like NHAI could significantly boost investor confidence, which would help catalyse more InvITs in India leading to more foreign capital.
- It’s seen to provide an efficient and optimum structure for financing and refinancing of roads and highways projects and free up NHAI’s capital for reinvestment in other avenues.