Indian Infrastructure Investment Trusts: Key Considerations and Implications for Foreign Investors
The regulations for infrastructure investment trusts (InvITs) were notified by the Securities and Exchange Board of India (SEBI) in September 2014. The introduction of InvITs has been viewed with high expectations as an innovative, new vehicle that can play a crucial role in meeting India’s significant infrastructure requirements, estimated to be INR 50,000 billion in between fiscal years 2018 and 20221 . Very simply put, InvIT is a mechanism that enables developers of infrastructure to monetize their assets by pooling multiple projects in a single entity (being a trust). InvITs are also aimed at playing a pivotal role in providing wider, long-term refinancing avenues, thereby creating headroom for banks to fund new projects and releasing developers’ capital for further deployment in ew projects. From an investor standpoint, it is believed that InvITs will provide risk adjusted exposure to large infrastructure assets, which may provide a consistent yield coupled with relatively higher levels of liquidity.
How promising is the India InvIT story? India’s InvIT regime is only 4 years old, with 6 InvIT registrations. Credit rating agencies have, in their reports2, pointed out that, led by roads, renewables and transmission sectors, there was potential for InvIT issuances worth INR 200 billion over the next 12-18 months.