Companies choose the private route for infrastructure investment trusts

While the private route allows for lower disclosures, industry experts add there are more significant advantages

More than two years since its introduction and with three such trusts in existence, recent corporate actions suggest that the private route is being preferred to a public listing. 

Reliance Industries’ Digital Fibre Infrastructure Trust and Tower Infrastructure Trust; Brookfield-sponsored India Infrastructure Trust, and Oriental Structural Engineers-sponsored InvIT are four similar instruments at different stages of formalisation. All three are expected to find investors through the private route. 

While the private route allows for lower disclosures, industry experts added that there were more significant advantages. “There is a definite advantage for a privately held InvIT, as the valuation is set after a mature discussion with a selected set of investors, who, besides bringing in long-term capital, offer strategic inputs,” said Shubham Jain, group head and vice-president for Icra Ratings. 

There are two public listed InvITs — Sterlite Power’s India Grid Trust and IRB Infrastructure Developers’ IRB InvIT fund. The third InvIT, Larsen & Toubro arm IDPL’s IndInfravit, is privately held. “L&T’s InvIT’s yield has been higher than those listed,” said a source with knowledge on the InvIT’s performance. 

When introduced, industry experts pegged the instruments’ fund raising potential at $5-7 billion. However, both companies and investors have been slow in warming up to the relatively new instrument. Mutual funds, for instance, are still to invest in a big way in InvITs. Wealth managers expect the trend to change in the future. 

“Given the kind of yields that the listed ones are offering, it is surprising that mutual funds have largely stayed away from InvITs so far. For an institutional investor, it does not matter much whether it is privately held or a publicly listed one. What matters is the sponsor reputation,” Nipun Mehta, founder and chief executive officer for BlueOcean Capital Advisors, said. 

According to Value Research, three mutual funds have less than Rs 50 crore combined in India Grid and 10 funds hold Rs 444.82 crore in IRB InvIT fund, of which only two funds held more than Rs 100 crore each as invested. 

“Funds like L&T and the proposed ones like Reliance Industries and Brookfield will offer sponsor reputation. I expect mutual funds will start looking at InvITs with better promoter reputation,” Mehta added.