Home / Companies / News /  Adani in talks with bankers to create infrastructure investment trusts

Mumbai: Adani Group, the conglomerate with interests in resources, logistics and energy, is in talks with investment bankers for the creation of infrastructure investment trusts (InvITs) across its businesses, said three people aware of the discussions.

The group has held initial discussions with several investment bankers over the past weeks, one of the persons cited above said on condition of anonymity.

“The discussions are at an early stage. They are trying to understand how InvITs could suit their various businesses such as ports, power transmission lines and power generation assets," he said.

Adani Group has large existing capacities in each of these areas and more are under development, he said, adding that InvITs could help the group unlock capital for forthcoming projects.

A spokesperson for the Adani Group declined to comment.

InvITs are trusts that manage income-generating infrastructure assets, typically offering investors regular yields and a liquid method of investing in infrastructure projects. InvITs are expected to encourage higher foreign investment in India’s infrastructure sector, reduce the burden on the banking system and allow developers to unlock tied-up capital.

Creating InvITs can also help Adani Group, controlled by billionaire Gautam Adani, lower its debt load by freeing up capital from its large portfolio of existing projects.

According to a report titled House of Debt, published by Credit Suisse in October, Adani Group’s gross debt grew to 96,013 crore in fiscal year 2014-15 from 84,440 crore in the previous year.

The 14% increase in debt was the highest among the most debt-laden Indian conglomerates, which included Videocon Group, JSW Group and GVK group, the report said.

Adani is the largest port operator in the country and handled 152 million tonnes of cargo in the fiscal year ended 31 March. Its power transmission business has over 5,051 circuit km in operation and another 1,384 circuit km under development.

Its power business has almost 10,400 megawatts (MW) of thermal power under operation with another 7,000MW in the development phase. The group has also entered the solar power sector and has as an operational power plant of 40MW.

Several road developers such as IRB Infrastructure Developers Ltd, IL&FS Transportation Networks India Ltd, MEP Infrastructure Developers Ltd and transmission line developer Sterlite Technologies Ltd are considering InvITs as a way to unlock capital.

While road operators and transmission line owners have been preparing to launch InvITs for some time now, the Adani Group is one of the first to consider an investment trust for its port and thermal power assets, said the second person cited above, also requesting anonymity.

“Both port and thermal power assets can lend themselves well to the InvIT structure, depending on the concession period for both. For power, there has to be a comfort on steady fuel supply leading to a good plant load factor. The power purchase agreement/power offtake are also crucial. If these elements are in place, then these assets can be conveniently put under a trust," said the second person.

The idea of InvITs, first proposed in the Union budget in 2014, could start to take shape soon, as most regulatory hurdles to the launch of the trusts have been cleared.

Last week, the Securities and Exchange Board of India (Sebi) released norms for public issue of units of InvITs—the final set of rules that had been awaited before companies start to market their issues.

Sebi said InvITs can offer up to 75% units to institutional investors in the public issue and the rest to any other class of investors.

On Thursday, CNBC-TV18 reported that Sebi chairman U.K. Sinha said the regulator had cleared two of the four applications it had received for registration of InvITs.

Sebi proposed its first set of rules for InvITs in 2014 and altered them in August 2015 to make it easier for companies to use the product.

As part of its revised norms, Sebi reduced the minimum commitment amount required by sponsors in InvITs from 25% to 10%. In other words, the company that promotes a trust can hold as little as 10% of the units issued by the trust.

InvITs are allowed to invest in infrastructure projects, either directly or through a special purpose vehicle (SPV). In case of public-private-partnership projects, such investments will be only through an SPV, as per the current norms.

Sebi’s norms say any InvIT that looks to invest at least 80% of its assets in completed and revenue-generating infrastructure projects has to raise funds only through a public issue, with a minimum 25% public float.

“The government and the regulator have moved fast in the last few months and have provided the enabling conditions for companies to move ahead with InvITs," said Prem Rajani, managing partner at law firm Rajani Associates.

“The IPO (initial public offering) route has not worked well for several infra companies, especially on the road side. With InvIT, the class of investors that will be investing will be different from the regular public market investors and will include those who are seeking regular cash-flow generating assets rather than capital gains," said Rajani.


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