NHAI looks to take the InVIT route in post-pandemic world

Mamuni Das New Delhi | Updated on September 18, 2020 Published on September 18, 2020

Demand for InVITs expected to be strong among investors despite valuation challenges

As the National Highways Authority of India (NHAI) gears up to ride the InVIT opportunity, it may have to settle down for lower valuations due to the impact of pandemic, say merchant banking industry sources. However, despite the new ground realities in post Covid-19 world, there will be strong demand among investors for InVITs (infrastructure investment trusts ) as an instrument, especially if it is priced attractively, they say.

The highway development authority may have to do a tough balancing act in terms of deciding the ideal route — either private placement or public listing — and the timing for bringing the Infrastructure Investment Trust (InVIT) to the market, they added.

Looking for a valuer

The NHAI has already indicated its keenness to go in for InVITs by incorporating and appointing National Highways Infra Investment Managers Private Limited (NHIIMPL) as an investment manager. It is also in the process of appointing a valuer.

Typically, InVITs are instruments that work like mutual funds. They pool small sums of money from number of investors and invest in assets that give cash flow over a period. An InVIT instrument enables infrastructure players to fulfil their debt obligations quickly.

Trustee appointed

There are four important parties to an InVIT — the sponsor, the investment manager, project managers and the trustee. The NHAI has appointed IDBI Trusteeship Services Limited as the trustee.

Although the NHAI is closely looking at an InVIT, no specific timeline has been decided. Projects that could form part of the trust are also not known at this point of time.

Meanwhile, batting for a public issue, Resurgent India, a company that has advised the NHAI on projects and contract agreements for different stretches, said that it would be better if funds were raised from public instead of through private placement so that public savings could be towards infrastructure.



“In private placement, investors are insurance funds, sovereign funds and large companies. I feel they should have a public issue as they can raise more funds,” Sudhir Chandi, Director, Resurgent India Limited, told BusinessLine.

Going for a public issue will require the NHAI to lower the ticket size, which is the minimum amount needed to invest. Investors in InVIT, which are like mutual funds, will receive returns through dividend and may get capital appreciation, he explained.

Projects that will be part of InVIT will be road projects that have been tolled for at least one year. “Higher the (toll collection) experience, better it will be for the investor. That is why the role of the valuer is important. He has to assess the Covid impact — based on the track record available,” Chandi said.

Overseas investors

There is a lot of interest from foreign investors in the road sector, Chandi said, adding that Covid-19 will lower the valuation of projects. “Valuing any project (post Covid-19) is a challenge. Leave aside the road sector, valuing any sector is a challenge. The road sector is relatively easy [in terms of valuation]. Challenges (on valuing) road sector will be on the micro-side – you need to make a traffic study today, compare that with projections before Covid-19 and see the kind of deviations. Then you have to assess when and whether it will become normal,” he said.

On InVIT, the Road Ministry’s latest annual report stated: “It will attract long-term capital, allowing the investors to have an indirect exposure in the project(s). This proposition is more attractive for foreign investors, which are hesitant to take direct exposure in highway projects.”

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Published on September 18, 2020
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