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MUMBAI : Infrastructure investments trusts and real estate investment trusts can raise 8 lakh crore to take their total assets under management to 10 lakh crore in the next five fiscal, rating agency Crisil said on Thursday.

A deeper debt market where investors can discern risks and returns across infrastructure asset classes, and stable regulations will be critical to achieving this goal, it added.

It can be noted that Infrastructure investments trusts (InvITs) and real estate investment trusts (REITs) have been gaining popularity in India lately, after successes overseas.

The estimate from Crisil comes a day after reports of Power Grid filing for a USD 1.1 billion InvIT initial public offering.

The government has estimated that investments of 111 lakh crore are required to be done in infrastructure till 2025, which is double the amount spent in the last five years, requiring alternative channels of financing, it said.

InvITs and REITs can play a "significant role" on this front, the agency said, adding the assets under management (AUM) for these two avenues have logged a 42 per cent compound annual growth rate (CAGR) since the launch of the first InvIT in fiscal 2018 to 2 lakh crore now.

"Investments under InvITs and REITs can grow by another 8 lakh crore over the next five fiscals, driven by an enabling regulatory framework, ample availability of operational infrastructure and real estate assets, and increasing appetite from global and domestic investors looking to invest in high-yield assets," the rating agency's senior director Manish Gupta said.

At present, there are 11 InvITs and REITs in India, and credit ratings on ten of these demonstrate the highest safety level on low debt, the combined debt-to-AUM ratio of less than 35 per cent, and over 90 per cent of AUM deployed in operational assets.

Regulatory support includes a cap on leverage and allowing investments in operational assets, stipulating a AAA rating threshold for listed InvITs if their debt-to-AUM ratio exceeds 49 per cent and also the mandatory distribution of surplus cash, the agency said.

Lower leverage in most situations is driven by regulations, but this is set to change, it said, pointing out to recent rules which afford setting up of an unlisted private InvIT sans any cap on leverage or ratings, or curbs on investments in operational assets.

However, despite the prospect of raising credit risks to some extent, it may still support holistic market development, the rating agency said.

As the market expands and regulations open up, the landscape will change, necessitating sharper differentiation in the credit and operating risks of InvITs and REITs, it added.

"Lenders and unitholders need to differentiate the varying nature of operating risks of underlying asset classes," its director Nitesh Jain said.

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