InvITs

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Introduction

Infrastructure Investment Trusts (InvITs) are a type of Collective Investment Scheme similar to mutual funds. They allow individual and institutional investors to directly invest in infrastructure projects and earn a portion of the income as returns. InvITs enable developers of infrastructure assets to pool multiple projects under a single entity, known as a trust structure. These trusts raise funds from a large number of investors and invest in infrastructure projects or through special purpose vehicles (SPVs). InvITs are designed to attract low-cost, long-term capital and provide a mechanism for developers to monetize their assets while generating fresh equity capital for infrastructure projects. They are positioned as high-dividend paying investments that offer stable cash flows and moderate capital appreciation. The regulations require InvITs to distribute at least 90% of the Net Distributable Cash Flows (NDCF) to investors every six months. Currently, there are two listed InvITs in India: IRB InvIT Fund and IndiGrid Trust.



Structure of InvITs:

Sponsor: The sponsor sets up the InvIT and appoints the trustee. They are required to hold a minimum of 15% of the units issued by the InvIT with a lock-in period of three years.

Trustee: The trustee holds the assets of the InvIT in the name of the trust for the benefit of the unit holders. They ensure that the functions of the InvIT, investment manager, and project managers comply with SEBI rules.

Investment Manager: The investment manager is responsible for making investment decisions related to the underlying assets of the InvIT. They manage the assets and investments of the InvIT.

Project Manager: A project manager is appointed for each project within the InvIT. They are responsible for the management, execution, and monitoring of the underlying assets.

Unit Holders: Individual and institutional investors who invest in the InvIT by purchasing units. They own both the debt and equity of the underlying project SPVs.

Overall, the structure of InvITs involves the sponsor, trustee, investment manager, project manager, and unit holders, all working together to manage and generate returns from infrastructure projects.

Infrastructure Investment Trusts (InvITs) assist developers in monetizing assets in the following ways:

Pooling of Projects: InvITs enable developers to pool multiple infrastructure projects under a single entity or trust structure. This allows developers to consolidate their assets and create a diversified portfolio, which can attract more investors.

Direct Investment: InvITs raise funds from individual and institutional investors and directly invest in infrastructure projects. This provides developers with a direct source of capital without relying solely on traditional financing methods like bank loans.

Special Purpose Vehicle (SPV): In some cases, InvITs may invest in infrastructure projects through a special purpose vehicle (SPV). This allows developers to separate the project from their core business and transfer the ownership to the InvIT, thereby monetizing the asset.

Regular Cash Flows: Infrastructure projects often take time to generate steady cash flows. InvITs provide developers with a mechanism to generate regular cash flows by distributing a portion of the income earned from the projects to the investors. This helps developers in meeting their financial obligations and reducing the funding pressure on the banking system.

Fresh Equity Capital: By attracting low-cost, long-term capital from a large number of investors, InvITs generate fresh equity capital for infrastructure projects. This infusion of capital allows developers to fund new projects, expand their existing projects, or repay existing debts.

Overall, InvITs provide developers with a platform to monetize their infrastructure assets, access capital, and generate regular cash flows, thereby supporting the growth and development of the infrastructure sector in the country.

What is the purpose of InvITs in reducing funding pressure on the banking system?

InvITs reduce funding pressure on the banking system by attracting low-cost, long-term capital from individual and institutional investors. Instead of relying solely on bank loans for financing infrastructure projects, InvITs provide an alternative source of funding. By pooling funds from a large number of investors, InvITs can directly invest in infrastructure projects or through special purpose vehicles (SPVs). This helps to diversify the sources of funding and reduces the burden on the banking system to solely finance infrastructure projects.

How do InvITs generate fresh equity capital for infrastructure projects?

InvITs generate fresh equity capital for infrastructure projects by raising funds from a large number of investors. These investors directly invest their money into the InvIT, which then uses the pooled funds to invest in infrastructure projects. The InvIT may invest directly in the projects or through a special purpose vehicle (SPV). This allows developers of infrastructure assets to monetize their assets by pooling multiple projects under a single entity. The main objective of InvITs is to attract low-cost, long-term capital for infrastructure projects and reduce the funding pressure on the banking system.

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