InvITs issuance gets a boost as RBI removes restrictions on banks

Asset monetisation through infrastructure investment trusts (InvITs) will gain traction after the Reserve Bank of India (RBI) removed restrictions placed on banks to lend to such entities.

On Monday, the RBI issued a notification on lending by banks to InvITs. Previously, it had permitted banks to invest into units of InvITs,

But, due to the lack of clarity in this regard, the banks were reluctant to extend credit facilities to InvITs.

“Thus, despite strong credit profiles, InvITs had limited avenues of raising debt. Through the October 14 notification, RBI has permitted banks to lend to InvITs subject to certain conditions. This clarity will help improve the debt availability for the InvITs and can pave way for increased InvIT issuance by infrastructure players,” said Shubham Jain, Senior Vice-President and Group Head, Corporate Ratings, ICRA.

“The credit profile of InvITs is stronger compared to infrastructure projects due to the benefits arising from asset diversification, cash flow pooling, and regulatory restrictions. While InvITs raise majority of funds from unit holders, debt also forms an important part of the InvIT’s fund raising for optimising return on investment. In the absence of bank lending at the InvIT level, the debt was being availed at the SPV level which resulted in operational complexity and higher credit cost,” he added.

The RBI move assumes significance as the National Highways Authority of India (NHAI) is looking to issue InvITs as part of its asset monetisation plan.

State Bank of India (SBI) Chairman Rajnish Kumar said on September 9 that the bank was keen to lend to InvITs but was constrained by regulatory restrictions.

“Banks can buy units in InvITs, but RBI does not allow lending to InvITs,” Kumar said at a road show organised by the NHAI.

So far, five InvITs have raised funds - IRB InvIT Fund, India Grid Trust, IndInfravit Trust, India Infrastructure Trust, Oriental InfraTrust - of which two were publicly offered while three were privately placed.

These trusts have together raised over $2 bn from investors including pension funds and long-term investors like CPPIB, Allianz Capital, OMERS, GIC, Brookfield and Asian Infrastructure Investment Bank.

‘InvITs is a promising vehicle for infrastructure sector’

The potential for InvITs is much larger with sizeable operational infrastructure assets in the country, Jain said.

“InvIT is a very promising vehicle for the infrastructure sector and helps to channelize long term investment into the sector. Over the years, the regulators - SEBI and RBI - have taken multiple steps to strengthen the regulatory framework while facilitating the genuine challenges faced by the InvITs. Now, with the availability of bank debt financing, InvIT issuances can further gain prominence. This can help unlock developer’s capital deployed in operational projects and improve the overall fund availability for the infrastructure sector,” Jain said.

The RBI’s permission for banks lending to such trusts is subject to the approval of the bank’s board on a policy about exposures to InvITs, detailed assessment of the critical parameters of the InvIT, the underlying SPVs before lending, as well as monitoring performance of the underlying SPVs on an ongoing basis. Further, banks can lend only to those InvITs where none of the underlying SPVs is facing financial difficulty with its existing bank loans.

The RBI has also asked banks to take into consideration the legal provisions for enforcement of security while lending to InvITs. It has permitted banks to provide debt to InvITs for acquisition of infrastructure companies provided they meet the conditions stipulated for financing promoter’s equity.

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