Infrastructure Investment Trusts

• The $668 million initial public offering of IRB InvIT Fund, India's first-ever infrastructure investment trust, drew a reasonably strong demand from investors amid hopes of a boom in spending to improve the south Asian nation's roads, railways and ports.

About InvIT:

• InvIT is a mechanism that enables developers of infrastructure assets to monetise their assets by pooling multiple projects under a single entity.
• InvITs are a first-of-their-kind really long-term instruments. At present, Government Securities or G-secs are the only other instruments with such a long life.
• InvITs have to ensure that they distribute 90% of their net cash flows to the unit investors. There is a leverage cap of 49% on the net asset value.
• There is also a cap on exposure to under-construction assets (for publicly placed InvITs).
• The sponsor of the InvIT is responsible for setting up the InvIT and appointing the trustee.
• The sponsor shall hold minimum 15% of the units issued by the InvIT with a lock-in period of three years from the date of issuance of units.
• The InvIT regulations also require companies to maintain certain investment ratios, including 80 percent of investments in completed and revenue-generating assets.
• InvITs that have been filed so far have specified minimum investment limits of Rs 10 lakh per investor.
• Worldwide InvITs are positioned as high-dividend paying investments suitable for investors who are especially looking for long-term, stable cash flows with moderate capital appreciation.
• InvITs are registered as trusts with SEBI and there are four parties — trustee, sponsors, investment manager and project manager. In the case of IRB InvIT, IRB Infrastructure Developers Ltd. is the sponsor, IDBI Trusteeship Services Ltd. is the trustee, IRB Infrastructure Pvt. Ltd. is the investment manager and the project manager is Modern Road Makers Pvt. Ltd.
• Sponsors are the firms which set up the InvITs. Investment managers manage assets and investments of InvITs and undertake activities of the InvIT. The project manager is responsible for executing the projects. The trustee oversees the role of InvIT, investment managers and project manager and ensures that all rules are complied with.
• InvITs are listed on and are subjected to the vagaries of the stock exchanges, resulting in negative or lower returns than expected. An economic downturn or project delays may hit infrastructure projects and result in lower returns. As in mutual funds, investors in InvITs have no control over investments and exits being made by the trust

By: Vishal