
For private InvITs, a new asset category is about to open up

Summary
- In a policy shift, completed and revenue-generating highways under the toll-operate-transfer (ToT) mechanism will be directly and exclusively auctioned to private InvITs
The Centre will auction completed road projects directly to private sector InvITs, to encourage higher participation from global investors in India’s infrastructure development programme, two people aware of the matter said.
In a policy shift, completed and revenue-generating highways under the toll-operate-transfer (ToT) mechanism will be directly and exclusively auctioned to private InvITs, the people said. Private-sector highway developers and funds such as sovereign wealth funds will not be allowed to participate in the auctions.
Earlier, such road projects were offered only to state-owned National Highways Authority of India’s InvIT, the National Highways Infra Trust (NHIT).
In the proposed system, once a road project or highway bundle is won by a private InvIT in a bidding process, it would mobilise global investments by offering subscriptions of its units, one of the two persons quoted above said on condition of anonymity.
An InvIT or infrastructure investment trust is a pooled investment vehicle—similar to a mutual fund—that is used for development of infrastructure projects such as highways.
“InvITs play a critical role in channelizing financial capital into the further development of Indian roads sector. And its basket needs to expand now given that increasing number of projects are coming up for monetisation," the first person cited earlier said. The projects up for monetisation next fiscal are yet to be identified.
“With highways already attracting private-sector developers—some with global fund participation—for operation and maintenance contracts of ToT projects, provision of such highways to InvITs would be a logical extension and would provide options for better valuation under a competitive process," said an official of the ministry of road transport and highways (MoRTH), also requesting anonymity.
The official added that NHAI has been asked to carve out road bundles that could be auctioned to private InvITs in the next financial year (2024-25) once a new government takes office at the Centre after the general elections.
Queries sent to MoRTH remained unanswered till press time.
According to ICICI Direct, as of December 2023, there are only 22 InvITs in India even though Sebi launched InvITs in 2014. Some of these are Cube Highways Trust, India Infrastructure Trust, IRB Infrastructure Trust, and IndInfravit Trust, among others.
Most of these InvITs either directly participate in the auction of ToT projects that are open for all (developers, InvITs, fund houses, etc.) or get projects that are transferred by their parent highway development companies. There is no separate window for InvITs to acquire completed road projects.
“Some existing listed private InvITs are directly participating in the ToT bids by NHAI; having a bid where ToTs are exclusively offered to InvITs will probably reduce competition as developers and funds (such as sovereign wealth funds) would not be able to participate in such bids," said Maadhav Poddar, Partner - Infrastructure Practice, EY India.
“Having said that, given that the cost of capital for InvITs is likely to be lower compared to developers and funds, the money generated on such bids may be comparable to the existing ToT bids. Secondly, such a structure will obviate the need for developers/ funds to first acquire the ToT bundles and then flip into InvITs," Poddar added.
The government has identified three modes for monetisation of its vast highway assets. First, offering projects to private sector developers for running under ToT route; second, through InvITs (so far direct offering only to NHIT); and third, securitisation of future toll earnings. But ToT route remains the mainstay of the monetisation exercise.
Since its launch in 2018, NHAI has successfully completed six rounds of the road asset (bundle of roads) monetization through ToT mode and raised ₹26,366 crore. Letters of authority (LoAs) are issued under ToT bundles 11, 12, 13 & 14, and realization of ₹15,968 crore concession fee is expected in FY24. The LoAs for these four ToT bundles were issued by NHAI within one day of opening of their respective financial bids. Total asset monetization under this model is expected to be ₹42,334 crore by the end of the current fiscal.
NHAI set up an InvIT under the Sebi InvIT Regulations, 2014, in which NHAI has 16% stake apart from main investors—Canada Pension Plan Investment Board (CPPIB) and Ontario Teachers’ Pension Plan (OTPP).
In the three rounds of monetisation by NHIT (the third round, biggest so far, was completed just a week ago), the total realized value of the InvIT stands at ₹26,125 crore, and it holds a diversified portfolio of 15 operating toll roads with an aggregate length of about 1,525 km spread across the nine states of Assam, Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan, Telangana, Uttar Pradesh and West Bengal, with concession periods ranging between 20 and 30 years.
To safeguard investors' interest, Sebi mandated InvITs to invest at least 80% of their total assets in completed infrastructure projects that can generate income. The balance 20% can be invested in under-construction infrastructure projects. The trust also needs to distribute at least 90% of its income to the unit shareholders as dividends.