Road InvIT AUM to double next fiscal, says Crisil report
- Crisil cautioned about monitoring geopolitical risks and their effect on investor sentiment, and also emphasised the importance of the quality of assets and the operational capabilities of InvIT managers
New Delhi: Assets under management (AUM) for infrastructure investment trusts (InvITs) in India's road sector will nearly double by March 2025 from the current ₹1.4 trillion, ratings agency Crisil said on Monday.
This anticipated growth is attributed to increasing composition of hybrid annuity model (HAM) projects within InvITs. The stability of cash flow from a growing number of HAM projects will counteract any slight uptick in leverage, thereby maintaining robust credit profiles.
Crisil examined nine road InvITs, totalling over 9,000 km across 105 assets, and found 50,000 km of road projects ready for monetisation. Since 2016, the National Highways Authority of India (NHAI) has favoured the HAM approach for public-private partnership projects. With many of these projects now completed, engineering, procurement, and construction firms are anticipated to seek their monetisation.
“The share of hybrid annuity model (HAM) projects in InvIT AUM is expected to increase to 20-25% by March 2025 from 7% currently. This is because InvITs are looking to diversify their pool by adding HAM projects in the current toll-heavy portfolios. Additionally, InvITs comprising only HAM projects are also in the offing. Net-net, 40% of the incremental AUM through next fiscal could come through monetisation of HAM projects,” said Mohit Makhija, senior director, Crisil Ratings.
Although the proportion of HAM assets in InvITs is set to increase, monetised toll projects from both private entities and NHAI will still account for 60% of the InvITs' incremental AUM. The Crisil report said that a balanced mix of HAM and toll assets bolsters the business risk profiles of InvITs.
HAM projects provide the advantage of consistent revenue, coupled with price and interest rate indexation, enhancing the InvITs' financial stability. Most monetised HAM projects will feature NHAI as the counterparty, whose reliable annuity payments foster the monetisation process. Toll roads, meanwhile, offer inflation safeguards and the potential to capitalise on India's economic progress.
According to Anand Kulkarni, director, Crisil Ratings, “The consolidated loan to value ratio of road InvITs, which is an indicator of leverage, is currently at ~41%. As the InvITs have, historically, shown intent to maintain balanced mix of debt and equity, leverage should remain comfortable at 45-47%2 by March 2025.”
Investor interest in InvITs remains robust, with over 60% of equity invested in road InvITs stemming from international investors, primarily from patient capital sources like pension and sovereign wealth funds.
However, Crisil cautioned about monitoring geopolitical risks and their effect on investor sentiment, and also emphasised the importance of the quality of assets and the operational capabilities of InvIT managers.
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Business NewsIndustryRoad InvIT AUM to double next fiscal, says Crisil report
First Published:30 Oct 2023, 03:25 PM IST
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