The National Highways Authority of India (NHAI) has recently come up with a resourceful plan to utilize Infrastructure Investment Trust(s) (InvIT) as a medium to gather funds for creating road infrastructure. This innovative approach is primarily aimed at streamlining resources to carry out expansive and holistic infrastructural growth.
Understanding Infrastructure Investment Trusts (InvITs)
Infrastructure Investment Trusts operate in a similar manner as mutual funds, providing an effective platform to accumulate small amounts of money from various investors. These funds are invested in assets that yield cash flow over time. A portion of this cash flow is then given back to the investors as dividends.
The minimum investment in an InvIT Initial Public Offering (IPO) stands at Rs 10 lakh, making it a viable choice for high net-worth individuals, institutional investors, and non-institutional investors. InvITs get listed on exchanges, akin to stocks, via IPOs. However, the Indian market for InvITs is still evolving with only ten InvITs formed till date, of which just two, IRB InvIT Fund and India Grid Trust, are listed.
The Securities and Exchange Board of India (SEBI) regulates InvITs under the Infrastructure Investment Trusts Regulations, 2014.
Structure of InvIT: Roles & Responsibilities
Similar to mutual funds, InvITs consist of a trustee, sponsors, an investment manager, and a project manager. The trustee’s role is to monitor the performance of the InvIT. The sponsor typically initiates the establishment of the InvIT. The investment manager oversees the assets and investments of the InvIT while the project manager ensures the successful execution of the project.
Why NHAI Chooses InvIT?
In October 2017, the Centre launched the Bharatmala Pariyojana for developing roads spanning 24,800 km with a total investment of Rs. 5,35,000 crore. To realize this mammoth task, NHAI requires substantial funds. InvIT provides one such option by monetizing already completed and operational National Highways and proposing appealing schemes for private players to invest in the construction of National Highways.
Benefits of InvIT
Considering the current decline in private sector investment, fundraising through NHAI and spending on infrastructure will stimulate the economy and attract more private sector investment. The anticipated NHAI’s InvIT offer is a strategic move by the government to explore alternate financing sources, aimed at enhancing public spending in roads and infrastructure. InvITs also enable companies to meet their debt obligations swiftly. Moreover, InvIT holders enjoy tax benefits, including exemption on dividend income and no capital gains tax, if InvIT units are held for over three years.
Safeguards for Investors
To protect the investors’ interests, InvIT issuers must adhere to certain rules. Firstly, the sponsor must hold a minimum of 15% of the InvIT units for a lock-in period of three years. Secondly, InvITs must distribute 90% of their net cash flows to the investors. Lastly, an InvIT must invest at least 80% in revenue generating infra assets.
[Source: IE]
