NHAI to put existing highway projects under infrastructure investment trust

The government is finalising a list of functional national highway projects that would be placed under infrastructure investment trust (InvIT) to be offered to potential investors. 

It is learnt that the National Highways Authority of India (NHAI) would prefer brown-field projects over greenfield contracts for InvIT. The reason being that the former is less risky, as opposed to the latter, because the construction work is complete and the traffic potential is easier to gauge as against the new projects, which are yet to begin construction. 

“The projects that are being considered for the InvIT structure comprise nearly 80 per cent brownfield (or existing projects) and around 20 per cent greenfield (or new) alignments,” an official said, adding that completely new projects are at a higher risk due to long term traffic projections. 

Under InvIT, three to four highway projects would be bundled together to form a special purpose vehicle (SPV) or a trust to be offered to the bidders. The bundle in the form of SPV would then be traded on the domestic stock exchanges and its returns to the investors would be linked to the performance of the InvIT on the capital market. It is similar to a mutual fund, which enables direct investment of money from individual and institutional investors in infrastructure projects to earn a small portion of the income as return. Experts feel that InvITs by design will have more operational assets in its portfolio with the option of having exposure to some greenfield assets. 

“Brownfield assets with proven toll receipts will give the investor a certain level of confidence on the returns they can expect the portfolio to generate. It also helps the authority in revenue maximisation,” said Jagannarayan Padmanabhan, director, CRISIL Infrastructure Advisory.  NHAI is expected to launch the first InvIT by December year. The private sector has taken the lead in this form of fund raising. IRB Infrastructure Developers launched the country’s first InvIT in January last year. 

IRB InvIT offered six completed road assets covering 3,000 km spread across five states and an average balance concession period of 16 years. The trust has 100 per cent ownership of all six road assets.

 

Dissecting the trust

• InvIT means bundling of three to four highway projects to form a special purpose vehicle or a trust to be offered to bidders
• The bundle in the form of SPV would then be traded on the domestic stock exchanges and its returns to the investors would be linked to the performance of the InvIT in the capital market
• It is similar to a mutual fund, which enables direct investment of money from individual and institutional investors in infrastructure projects to earn a small portion of the income as return