InvITs: Companies in ‘wait & watch’ mode

As both IRB InvIT and India Grid Trust promoted by IRB Infrastructure Developers and Sterlite Power Grid Ventures, the first two InvITs to get listed on the bourses, are currently trading below their issue prices, investors and infrastructure players have started adopting a “wait and watch” policy before making further decisions on the instrument.

IRB InvIT Fund traded at ₹99.6 on the NSE on Tuesday, below the offer price of ₹102 a unit. India Grid Trust debuted on the exchanges last week at a slight discount to its issue price of ₹100 and was trading at ₹96.3 on Tuesday.

“It needs to be appreciated that InvIT is not purely an equity or a debt product but a yield product, which has been introduced for the first time in Indian markets,” IRB Infrastructure Developers spokesperson told BusinessLine . “Retail investors, therefore, may need time to assess and understand it. Furthermore, we have not seen any of the long-only funds exiting post-listing. In fact, they have increased their holding.”

According to Harsh Shah, CFO, Sterlite Power, the ticket size of five lakh set by the regulator for investing in the InvIT post-listing is too high and limits investor participation.

“If the ticket size is reduced, it will allow broader participation by investors in the product, which will improve the performance,” Shah told BusinessLine . “This is something that puts this product at a disadvantage despite being a safer one than equity; this is something that should change,” Shah added. He said that once the first dividends are paid, investors will see more value in the project.

Nalin Moniz, Chief Investment Officer — Alternative Equity, at Edelweiss Global Asset Management, agrees. “I think once we have the first couple of coupon payments from the InvITs and once the firm yield is established, we will see much bigger take-off.” This might take three to six months,” he added. According to SEBI rules, InvITs are bound to pay dividends at least twice a year.

“In the medium to long term, I would see that a lot of infrastructure companies will use this route to sell completed assets because it is important for the capital efficiency of their businesses,” Moniz said.

Although tepid performance of the first two InvITs in terms of listing gains is unlikely to not deter other infrastructure players from launching their trusts, experts suggest the valuations based on aggressive growth rates may become a hurdle for the new issues.

Industry sources say, so far only Reliance Infrastructure is very close to launching the InvIT initial public offering while companies such as MEP Infrastructure, GMR Infrastructure, IL&FS and its road development arm IL&FS Transportation Networks India (ITNL), may want to wait for the yield to settle down.

The Reliance Infrastructure spokesperson confirmed that the company is “on track” to launch its ₹2,500-crore InvIT, while the GMR Group spokesperson said the company has received SEBI approval for an InvIT and is exploring various capital-raising options through the InvIT.

Jayant D Mhaiskar, Vice-Chairman & MD at MEP Infrastructure told BusinessLine the company is in advanced stages of filing the Draft Red Herring Prospectus after it received most of the necessary clearances from the authorities.

IL&FS and ITNL were not available for comments. According to sources, IL&FS and ITNL will come up with two different issues. While IL&FS is planning to raise around ₹2,500 crore through private placement of an InvIT, ITNL may go for a ₹4,200-crore IPO.

During the Q4 FY2017 results conference call with analysts held on June 1, Mukund Sapre, Executive Director, ITNL, said the company was aiming to complete the transaction in the current quarter.

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