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Infrastructure Investment Trust (InvITs)

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Infrastructure Investment Trusts (InvITs) are mutual fund like institutions that enable investments into the infrastructure sector by pooling small sums of money from multitude of individual investors for directly investing in infrastructure so as to return a portion of the income (after deducting expenditures) to unit holders of InvITs, who pooled in the money.

For these purposes, Infrastructure is as defined by Ministry of Finance vide its notification dated October 07, 2013 and would include any amendments/additions made thereof.

InvITs can invest in infrastructure projects, either directly or through a special purpose vehicle (SPV). In case of Public Private Partnership (PPP) projects, such investments can only be through SPV.

InvITs are regulated by the securities market regulator in India- Securities and Exchange Board of India (SEBI).

SEBI notified SEBI (Infrastructure Investment Trusts) Regulations, 2014 on September 26, 2014, providing for registration and regulation of InvITs in India. The objective of InvIT is to facilitate investment into the infrastructure sector in India.

InvITs are very much similar to the Real Estate investment Trusts (REITs) in structure and operations. InvITs are modified REITs designed to suit the specific circumstances in India.

Types of InviTs
Two types of InvITs have been allowed, one which is allowed to invest mainly in completed and revenue generating infrastructure projects and other which has the flexibility to invest in completed/under-construction projects. While the former has to undertake a public offer of its units, the latter has to opt for a private placement of its units. Both the structures are required to be listed.

Main Features of InvITs in India

Structure of InvIT
InvITs are set up as a trust and registered with SEBI. An InvIT has 4 parties such as Trustee, Sponsor(s) and Investment Manager and Project Manager. .

The trustee, who oversees the role of an InvIT is a SEBI registered debenture trustee and he cannot be an associate of the Sponsor or Manager.

“Sponsor” means promoters and refers to any company or Limited Liability Partnership (LLP) or body corporate with a networth of Rs. 100 crore which sets up the InvIT and is designated as such at the time of application made to the SEBI and in case of PPP projects, it refers to the infrastructure developer or a special purpose vehicle (with the networth as specified in the PPP contract) holding concession agreement;

Promoters or Sponsor(s), collectively, have to hold atleast 25% in the InvIT for atleast 3 years, except for the cases where a regulatory requirement/ concession agreement requires the sponsor to hold a certain minimum percent in the underlying SPV. In such cases the consolidated value of such sponsor holding in the underlying SPV and in the InvIT cannot be less than 25% of the value of units of InvIT on post-issue basis.

Investment Manager is a company or Limited Liability Partnership (LLP) or body corporate which manages assets and investments of the InvIT and undertakes activities of the InvIT.

Project manager means the person designated as the project manager by the InvIT, responsible for achieving execution of the project and in case of PPP projects, it refers to the entity responsible for such execution and achievement of project milestones in accordance with the concession agreement or any other relevant project document.

If the investment is done through an SPV, then InvIT has to hold a controlling interest with not less than 50% of the equity share capital or interest in SPV, except where the same is not possible because of a regulatory requirement/ requirement emanating from the concession agreement. In such cases sponsor has to enter into an agreement with the InvIT, to ensure that no decision taken by the sponsor, including voting decisions with respect to the SPV, are against the interest of the InvIT/ its unit holders. The Union Budget 2016-17 has withdrawn the 17% Dividend Distribution Tax that is applicable on any distribution made out of income of SPV to the REITs and INVITs, having specified shareholding.

InvIT has to be listed on a stock exchange.

Operational aspects
Value of the assets owned/proposed to be owned by InvIT shall be at least Rs 500 crore. Minimum issue size for initial offer is Rs 250 crore.

InvITs are allowed to add projects in the same vehicle in future so that investors can benefit from diversification as well as growth in their portfolio.

Maximum borrowing permitted is 49% of the value of the InvIT assets. Further, post 25% unit holders approval and credit rating is mandatory for borrowing.

InvITs which propose to invest at least 80% of the value of the assets in the completed and revenue generating Infrastructure assets, shall :

InvITs which propose to invest more than 10% of the value of their assets in under construction infrastructure projects:

Listing is mandatory for both publicly offered and privately placed InvITs.

Advantages of InvITs
Given the challenging phase of infrastructure in the country today, InvITs are proposed to provide a suitable structure for financing/refinancing of infrastructure projects in the country.

Several existing infrastructure projects which are under development in India are delayed and ‘stressed’ on account of varied reasons including increasing debt finance costs, lack of/locked up equity of private investors in projects which precludes them from undertaking new projects, lack of international finance flowing to Indian infrastructure projects, project implementation delays caused by various factors like global economic slowdown, cost overruns, inability of concessionaire to meet funding requirements on time, etc.

InvITs, as an investment vehicle, may aid:

There are several infrastructure companies whose funds are locked up in completed/substantially completed infrastructure projects which can otherwise be used for furthering infrastructure development in the country. InvITs may be an enabling vehicle for refinancing such assets as well as creating an investment option which may otherwise not be possible for smaller investors.

InvITs may help in attracting international finance into Indian infrastructure sector.

InvITs will enable the investors to hold a diversified portfolio of infrastructure assets.

InvITs are also proposed to bring higher standards of governance into infrastructure development and management and distribution of income from assets so as to attract investor interest.

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