The Government focus on infrastructure was evident in last two Union budgets with a lot of optimism in infrastructure theme playing out. The traditional ways of investing in infrastructure theme were buying the stocks of infra developers, infra themed mutual funds or debt instruments issued by government agencies like NHAI. However, in recent times InvITs have also emerged as an interesting investment avenue for investors. An InvIT is an investment vehicle created by a sponsor (an infrastructure company) transferring its operational assets to it, thereby freeing up its own capital for new projects. Investors in InvITs periodically receive a portion of the net distributable surplus (NDS).
To understand more on the prospects for InvITs, bl.portfolio caught up with Nitan Chattwal - founder of Shrem InvIT. Shrem InvIT holds a bouquet of 24 assets consisting of Annuity, HAM and Toll Projects in five States. The company registered with SEBI as an InvIT on February4, 2021. The Sponsor of Shrem InvIT is Shrem Infra Structure Private Limited, which is a part of the Shrem group.
I understand that you have been in multiple businesses before foraying into infrastructure. Please give a snapshot of your journey.
I started my career in 1985 in Mumbai and was in the business of manufacturing stainless steel till 2010. I then sold my company and started investing in real estate. I entered infrastructure space in 2016, this is where story of Infrastructure investment starts. We started with one project and then bought 24 projects by investing ₹1,500 crore. These projects were work in progress, and took another 3.5 years to finish. In September 2021, we shifted these assets into an InvIT and Shrem InvIT was formed.
Can you give an overview of your asset portfolio?
At the moment we have one toll asset, 17 state annuity assets, 6 HAM assets and now we are adding another 10 HAM assets. These 33 annuity assets will contribute up to 95 per cent of our revenues.
What is your view on road infra in our country (in context of Budget 2023)
In last few years, the pace of road construction has been good. Previously, there were some issues in the construction and the contracts, but after the introduction of Hybrid Annuity model things have been a lot better. The pipeline of the projects is strong and we expect good amount of road construction taking place till 2030.
How is InvIT as a security for retail investor?
InvIT is a hybrid instrument which is like part debt and part equity. So what it does is that it gives long term return and also usually has consistent annual income (bulk of net distributable surplus is returned to investors periodically). The variation in the price of InvIT is also marginal compared to equity shares and the income stream is also regular which is beneficial for retail investors
In the current rising interest rate scenario how is InvIT placed against other investment options such as FDs?
Recently the fixed deposit rates have gone up to 7-8 per cent otherwise it has been lower. Some InvITs (not the HAM and Annuity InvITs) get impacted by the interest rate cycle and cost of funds. However, even with the rise in the rate on FDs InvIT’s would be paying a better return. Earlier, the gap was wider when interest on FDs were lower but now even after the rise in rates of FDs InvITs will still earn better return.
How is InvIT placed in our country in terms of awareness among retail investors?
Since InvITs started coming in, there have been investments to the tune of ₹1 trillion in which a certain portion is invested by retail public too. Currently, six publicly listed InvITs exist in our country. Awareness for InvITs has been increasing by the day and we are hopeful that this will be one of the major investible thrust area for the retail investors in future.
In Union Budget 2023, the new provisions now intend to tax the capital repayment portion of InvIT payout. How will it impact the attractiveness of InvITs?
As per the amendment that has been drafted, capital repayment will also be taxed at investor’s income tax slab along with dividend and interest. We believe this has been unintended by the government. We have already made representation to the government to try to understand the problem and government has shown positive inclination to address the issue. We hope that taxability issue will be addressed because today there is so much capital requirement for infrastructure projects and it will harm the growth of InvITs in India due to the amendment. Rather than taxing it at income tax slab, it should be taxed as capital gain.
What are the future plans of Shrem InvIT? Are there any new acquisitions in pipeline?
We are on the way to acquire 10 assets. We are working with 3-4 other developers where bids are in different stages that will be finalised in the next few months. Further, the acquisititon of few thousand crores have been planned.
What sort of risks are faced by the InvITs? Out of Annuity and toll projects which one do you think is riskier?
Variability of revenues can be a risk. Generally, all these infrastructure assets are long term ones and would be having steady revenues. However, there can be times like COVID where toll revenue might not be there. But otherwise, they are generally stable. Definitely, Toll is a little riskier than annuity. Annuity payments come from the government, so you are getting paid regularly.
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