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Recently, the National Highways Authority of India (NHAI) has decided to use Infrastructure Investment Trust(s) (InvIT) as a vehicle for mobilising funds for constructing road infrastructure.

About Infrastructure investment trust (InvIT):-

• An Infrastructure Investment Trust (InvITs) is a Collective Investment Scheme similar to a mutual fund.
• It enables direct investment of money from individual and institutional investors in infrastructure projects to earn a small portion of the income as return. ( FPI and InvITs)
• The InvIT is designed as a tiered structure with Sponsor setting up the InvIT which in turn invests into the eligible infrastructure projects either directly or via special purpose vehicles (SPVs).
• Regulated by: SEBI (Infrastructure Investment Trusts) Regulations, 2014.
• An InvIT has four parties namely: Trustee, Sponsor(s) and Investment Manager and Project Manager.
  • While the trustee (certified by Sebi) has the responsibility of inspecting the performance of an InvIT, sponsor(s) are promoters of the company that set up the InvIT.

Types of Infrastructure Investment Trusts

As per current SEBI Regulations InvITs can be divided into 5 key types depending on the types of infrastructure they own or operate:

• Energy such as power generation and distribution.
• Transport & Logisticsg. operating highways and other toll roads
• Communicationsg. optical fiber networks and telecom towers
• Social and Commercial Infrastructure g. parks
• Water and Sanitationg. irrigation networks

How do InvITs help the developer?

• InvITs allow developers of infrastructure assets to monetise their assets by pooling multiple projects under a single entity (trust structure).
• For instance, IRB InvIT constitutes six special purpose vehicles consisting of toll-road assets aggregating to 3,645 lane kilometres of highways located across the states of Maharashtra, Gujarat, Rajasthan, Karnataka and Tamil Nadu.

What is the structure of InvITs?

• InvITs are registered as trusts with SEBI and there are four parties — trustee, sponsors, investment manager and project manager.
• Sponsors are the firms which set up the InvITs.
• Investment managers manage assets and investments of InvITs and undertake activities of the InvIT.
• The project manager is responsible for executing the projects.
• The trustee oversees the role of InvIT, investment managers and project manager and ensures that all rules are complied with.

Benefit:

• At a time when private sector investment in the economy has declined, fund-raising by NHAI and spending on infrastructure will not only provide a fillip to the economy, but will also crowd-in private sector investment.
• NHAI’s InvIT offer, which is expected to come soon, is a way for the government to tap alternative sources of financing to boost public spending in the roads and infrastructure sector.
• An InvIT also offers the company the leeway to fulfil its debt obligations quickly.
• InvIT holders also benefit from favourable tax norms, including exemption on dividend income and no capital gains tax if InvIT units are held for more than three years.

Safeguards for Investors:

• There are certain rules that the InvIT issuers have to follow designed to safeguard the investor.
  • First, the sponsor has to hold a minimum 15% of the InvIT units with a lock-in period of three years.
  • Second, InvITs have to distribute 90% of their net cash flows to investors.
  • Lastly, the InvIT is required to invest a minimum of 80% in revenue generating infra assets.

FAQs About Infrastructure Investment Trusts (InvITs)

Read also:- Infrastructure Investments