Cabinet authorises NHAI to set up InvIT to monetise national highways

The Union Cabinet on Wednesday approved the proposal of Ministry of Road Transport and Highways to authorise the National Highways Authority of India (NHAI) to set up Infrastructure Investment Trust(s) (InvIT) to monetise completed national highways that have a toll collection track record of at least one year.

The INvIT guidelines would be issued by the Securities and Exchange Board of India (Sebi) and NHAI will reserve the right to levy toll on the identified highway.

InvITs are trusts, similar to mutual funds listed on a stock exchange, which raise funds from investors, acquire income yielding infrastructure assets, manage such assets and distribute regular yields to investors.

InvIT as an instrument provides greater flexibility to investors and is expected to lead to the creation of specialised O&M (operation and maintenance) concessionaires and attract patient capital (for say 20-30 years) to the Indian highway market, as these investors are averse to risk and are interested in investing in assets which provide long-term stable returns, an official statement said.

In October 2017, the government launched Bharatmala Pariyojana  - its flagship highway development programme for the development of 24,800 km of roads for a total investment of Rs 535,000 crore.

Given the magnitude of the Bharatmala program, NHAI would need adequate funds to complete the projects within the prescribed timeline. As part of this exercise, a workable option is to monetise the completed and operational national highway assets to unlock their value and offer attractive schemes to private players to invest in construction of national highways.

Using new and innovative financing, vehicles have become inevitable for organisations like NHAI that have limited existing sources of funds. Former finance minister, in his budget speech of year 2018-19, had stated that NHAI may consider organising its road assets into Special Purpose Vehicles (SPV) and use innovative monetising structures such as Toll, Operate and Transfer (TOT) model and Infrastructure Investment Trusts (InvlTs).

Based on the learning and experience, NHAI has been actively working on setting up an InvIT to monetise its completed and operational national highway projects with the objective of mobilising additional resources through capital markets, the statement added.

NHAI's InvIT will be a trust established by NHAI under the Indian Trust Act, 1882 and Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014. The InvIT Trust will be formed with an objective of investing primarily in infrastructure projects (as defined by Ministry of Finance). InvIT may hold assets either directly or through an SPV or a holding.

Road construction company IRB Infrastructure Developers was the first private company in the sector to come out with an INvIT.

PSUs like Power Grid Corporation of India Ltd (PGCIL) plan to monetise close to Rs 2,000 crore worth of its assets through the InvIT route. The proceeds from the InvIT would be used pay higher dividend depending on the profit recognised on such sale of assets or capital expenditure layout, the company told analysts.

Power Grid is planning to set up a special purpose vehicle (SPV) wherein it will transfer some of its assets. This SPV would then be part of the InvIT which will be floated and owned by Power Grid.