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Infrastructure investment trusts (InvITs) and real estate investment trusts (REITs) are gaining currency in India and can potentially help raise up to ₹8-lakh crore of capital for India’s infrastructure buildout over the next five fiscal years, according to a CrisilL Ratings analysis.
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.
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A government task force has estimated that ₹111-lakh crore of investments are required in infrastructure through fiscal 2025 — or twice that spent in the past five fiscals. That’s a humungous investment need, and cannot be met by the government and traditional infrastructure-financing channels alone. Thus, alternative channels need to be pressed into service.
InvITs and REITs can play a significant role here. Their combined assets under management (AUM) have logged a whopping 42 per cent compounded annual growth rate (CAGR) since the launch of the first InvIT in fiscal 2018 to ₹2-lakh crore now.
Manish Gupta, Senior Director, CRISIL Ratings Ltd, said, “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.”
Currently, there are 11 InvITs and REITs in India. Ten of these carry the highest level of credit ratings — (AAA).
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Recent rules afford setting up of an unlisted private InvIT sans any cap on leverage or ratings, or curbs on investments in operational assets. While this could raise credit risks to some extent, it may still support holistic market development.
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.
Nitesh Jain, Director, CRISIL Ratings, said, “Lenders and unitholders need to differentiate the varying nature of operating risks of underlying asset classes. For instance, the cash-flow stability of a power transmission project is higher than that of a solar power project. Typically, a power transmission project’s revenue is linked to the availability of lines and not the actual transmission, whereas a solar power project’s revenue is linked to the power generated. Therefore, a power transmission project carries low operating risk and can sustain higher debt.”
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