Relaxed FPI norms in InvITs to help Reliance, Tata Power cut debt

The infrastructure InvITs to be launched by Reliance Industries, Tata Power and Vodafone Idea will be able to attract investments from foreign portfolio investors (FPIs), with the Union Budget relaxing norms to enable FPIs to subscribe to listed debt securities issued by InvITs and REITs.

While Sebi had operationalised issue of debt securities under the InvIT and REIT regulations, raising financing from FPIs had hit a roadblock due to restrictions under the FPI regulations as only corporate debentures were permitted. “As Invits and REITs are organised as trusts, it is now proposed to align the FPI regulations and permit FPIs to subscribe to debt securities issued by Invit and REITs,” said Shagoofa Rashid Khan, Partner, Cyril Amarchand Mangaldas.

Reliance Jio Infocomm, a subsidiary of Reliance Industries, plans to hive off its telecom and fibre assets to two separate InvITs. With this, Reliance will be able to park debt worth $15.4 billion with the InvIT which is seeking investments from both foreign and local investors. Taking a leaf from RIL's books, Tata Power also plans to deleverage its balance sheet by hiving off its renewable energy portfolio and park debt worth Rs 10,000 crore with the InvIT. Tata Power had gross debt of Rs 48,500 crore as on March 2019. Vodafone Idea, owned by Vodafone and Aditya Birla group, is also planning an InvIT to hive off part of its Rs 1.2 trillion debt.

The move will also help Embassy Office Park REIT, which was listed recently on the Indian stock exchanges.

As of now, foreign investments via the FPI route are too restrictive and despite interest shown by overseas participants to invest in the InvITs of top-rated companies', they were not allowed. With the Modi government announcing that it would permit Rs 100 trillion in creating infrastructure in the next five years, it would be foreign investors which would plug the gap between fund supply and demand.

"As long as the origin of foreign money is not in question, such restrictions are not good in attracting foreign capital," said Dr Suresh Surana, founder, RSM India. "The infrastructure sector is capital intensive and requires huge investments. The InvITs are an instrument between debt and equity. Those investors who do not like risk in equity or long term security in debt but assured and more returns can invest in a InvIT," he said.

InvITs in the pipeline

• Tower infrastructure by RIL
• Fibre optic Infrastructure by RIL
• Tata Power renewable power portfolio
• Vodafone Idea Ltd for fibre assets
• Sterlite Power Grid for transmission assets