Mumbai: Road developer IL&FS Transportation Networks Ltd (ITNL) will monetize three or four of its mature assets by creating an infrastructure investment trust (InvIT), a top company official said.
The company, one of India’s largest build, operate, and transfer (BOT) road operators, is finalizing plans to launch a trust over the next six to nine months, chief financial officer Dilip Bhatia said in a phone interview.
InvITs are trusts which manage income-generating infrastructure assets, typically offering investors regular yield and a liquid method of investing in infrastructure projects.
In May, market regulator Securities and Exchange Board of India (Sebi) released norms for the public issue of units of InvITs—the final set of major rules that were awaited before companies could start marketing their issues.
“We find it will be a good vehicle to monetize some of our mature assets. While plans are being firmed up, we will look at three to four projects, which will probably go into InvIT and that will help us reduce debt substantially at the consolidated level,” he said.
ITNL, with 31 road projects in its portfolio, had consolidated debt of Rs.27,643 crore as on 31 March.
Bhatia said the company is also looking to sell one of its operational road assets to a long-term financial buyer. Mergers and acquisitions in the roads sector have picked up, but deals are taking longer to complete since a number of approvals are required.
ITNL last week agreed to sell its seven-year-old operational road asset Andhra Pradesh Expressway Ltd (APEL) to Cube Highways and Infrastructure Pte. Ltd, a joint venture between US-based I Squared Capital and International Finance Corporation, for Rs.140.37 crore. Debt of about Rs.500 crore in the project will also be assumed by Cube Highways.
In January 2015, Macquarie Group Ltd had acquired nearly 42% stake in ITNL’s road project Gujarat Roads and Infrastructure for Rs.650 crore. In May, it acquired another 15% via its investment vehicle MAIF Investments India Pte. Ltd, taking its total holding in the project to 56.8%. ITNL holds 26.8% in the project.
ITNL has been in discussions for at least a year to monetize its BOT assets either through the newly approved InvIT structure or by finding buyers for an outright sale, in order to cut debt and fund projects under construction. Mint had reported in March that ITNL has initiated the process of listing its road assets as InvITs, citing three unnamed sources.
Bhatia said the company has made an application to Sebi for its InvIT plans.
“InvITs will probably see the light of day faster than REITs (real estate investment trusts),” Abhishek Goenka, tax partner at PricewaterhouseCoopers (PwC), said, adding, “The fundamental reason InvITs would happen faster is because several large infrastructure projects need significant recapitalization.”
India introduced both InvITs and REITs around the same time.
Overall returns in the InvIT structure could still be muted given that many infrastructure assets are on fixed return concession agreements, Goenka said.
“Therefore, there is not much growth return that investors can look forward to. I think what is probably holding back some of the InvITs is to find an investor category which is okay with a 9-10% kind of return,” he said.
Tata Realty and Infrastructure Ltd (TRIL) is planning to invest around Rs.9,000-10,000 crore in various infrastructure projects, build a substantial portfolio and then launch an InvIT, Mint reported on 16 August.
IRB Infrastructure Developers Ltd and Sterlite Power Grid are also gearing up to list their InvITs. Other infrastructure companies such as GMR Infrastructure Ltd and MEP Infrastructure Developers Ltd are also looking to raise money and cut debt via structures such as InvITs.
ITNL has exposure to national and state highways, urban roads, tunnels, flyovers and bridges. Parent company IL&FS held a 70.79% stake in ITNL as of 30 June.