Budget 2018: NHAI, CPSEs’ tapping InvIT route could be a boost for market

Mumbai: The National Highways Authority of India (NHAI) and other central public sector enterprises (CPSEs) can tap the infrastructure investment trust (InvIT) route for raising capital, finance minister Arun Jaitley said in his budget speech on Thursday.

InvITs are trusts that manage income-generating infrastructure assets, typically offering investors regular yield and a liquid method of investing in infrastructure projects. The concept of pooling infrastructure investments into a trust, in which shares can be sold to investors, was first mooted in 2014 to help firms unlock capital in operational projects, which, in turn, would allow them to undertake new investments.

“The government and market regulators have taken necessary measures for development of monetizing vehicles like InvIT and Real Investment Trust (ReIT) in India. The Government would initiate monetizing select CPSE assets using InvITs from next year,” said Jaitley.

NHAI will consider organizing its road assets into Special Purpose Vehicles and use innovative monetizing structures like Toll, Operate and Transfer (TOT) and InvITs for raising funds, Jaitley added.

According to industry experts, NHAI and other marquee CPSEs tapping the InvIT market to raise capital could significantly boost activity in the InvIT market.

“After the first two listings we haven’t seen any other issuer come to the InvIT market and so getting a big name like NHAI to list will definitely be helpful for the market,” said Sandip Bhagat, partner at law firm S&R Associates.

Last year, road developer IRB Infrastructure Developers Ltd and Sterlite Power Grid Ventures’ raised capital through their respective roads and transmission InvITs - IRB InvIT Fund and India Grid Trust. IRB raised Rs5,035 crore, while Sterlite raised Rs2,250 crore through its InvIT offering.

As of end of day on 1 February, IRB InvIT was trading 15% lower than its issue price, while India Grid Trust was trading 7.5% lower than its issue price.

According to Girish Nadkarni, managing director at investment banking firm Motilal Oswal Investment Advisors, issuers like NHAI could add credibility to the InvIT market, while also helping to deepen these markets.

“An InvIT is a debt instrument but was marketed as an equity instrument. Essentially it is a debt instrument that allows you higher returns. The InvIT market is very shallow right now as they are only two transactions. It will need many more transactions for the market to deepen. It will happen as people realize that InvITs are debt instruments with higher yield and NHAI will give it that credibility,” said Nadkarni.

The debt markets are not as developed as the equity markets and so this will be a good way to give a boost to the market and deepen the markets, he added.

The entry of government entities in the market could also benefit the segment by way of changes in the current REIT/InvIT regulations, added experts.

“REIT is a successful product across various jurisdictions. If the government itself wants to now do REITs, we could see them come with amendments to make the product more attractive for the investors. Then we should see more such transactions coming through in the market,” said Prithvi Haldea, chairman at Prime Database Group, a primary market tracker.