Ratings agency ICRA has said that over the next five years, Infrastructure Investment Trusts or InvITs have the potential to acquire infrastructure assets worth ₹4 lakh crore, signalling the appetite for InvITs, an increasingly preferred investment vehicle.

Over the last decade India has seen significant infrastructure asset creation, especially in the roads and the power sectors. So far, six InvITs have raised about ₹ 27,600 crore from long-term investors which include the likes of GIC and Canadian pension fund CPPIB, and large financial asset management companies like KKR, Brookfield and Allianz.

“Most of these assets have also built some track record, thereby reducing the uncertainties on cash flows to a major extent and are prospective candidates for InvITs,” said Shubham Jain, Senior Vice-President and Group-Head, Corporate Ratings, ICRA. Additionally, NHAI, IL&FS and PGCIL will come out with their InvITs. NHAI, the government’s nodal agency for roads, plans to raise around ₹ 85,000 crore by monetising 6,000 km of operational toll roads. Further, many projects are in the implementation stage or have limited operational track record. Once operational and establishes some track record, these will also be prospects for addition to InvITs. Roads, transmission, telecom, and renewable energy are some of the sectors with potential for asset monetization through the InvIT route, according to Jain.

Asset monetisation

For developers, InvITs besides monetising existing operational projects, also provides a platform for future asset monetisation, thereby providing them some certainty on their investments in infrastructure assets. “InvITs will help in releasing capital invested in operational projects regularly which can be used for deployment in developmental projects, thereby keeping the infrastructure investment cycle running,”. Furthermore, private InvITs can invest in under-implementation projects which provide developers the opportunity to share risk even during the construction phase as well as reduce its equity funding commitment towards these projects.”

Tax exemptions

Another key reason for InvITs to gain popularity has to do with the evolution of the regulatory and taxation regime. According to recent SEBI guidelines, sovereign wealth funds were exempted from tax on investments made in InvITs. Majority of the investors in InvIT are long-term global investors like pension funds, and sovereign wealth funds. “InvITs provide them a tax-efficient vehicle for making long-term investments (in excess of 20 years) in the country’s infrastructure assets,” said Jain. For InvITs to continue its momentum, stable regulations and a taxation regime, and a conducive macro environment will be required to support investor’s appetite. “These are long-term investments and investors should not be subjected to negative surprises every year,” said Jain.

Recently, a high-level task force had submitted a final report on the National Infrastructure Pipeline with projected infrastructure investment of ₹ 111 lakh crore during FY 2020-25.

Published on October 20, 2020