Rs 2-trillion InvITs likely to hit market in the next 5 years, says ICRA

Infrastructure investment trusts (InvITs) worth Rs 2 trillion are expected to hit the market over the next five years, says rating agency ICRA. Of the total, about Rs 80,000 crore of InvITs could be launched within a year, it said.

The National Highway Authority of India (NHAI) InvIT, Tower Infrastructure of Reliance Jio, a second InvIT from IRB, and eight road assets by L&T and IndInfravit from Sadhbav are some of the issuers that are in advanced stages to raise money through this instrument. So far, about Rs 22,000 crore has been raised through InvITs.

ICRA said a favourable tax regime would be required to ensure healthy investor interest. InvITs are fundraising tools, specifically designed for infrastructure space. It is a collective investment vehicle that pools together funds from investors to acquire income-generating infrastructure assets from developers. The cash flows from underlying assets are passed on to the unit holders.

Companies from roads, telecom fibre, power transmission, and generation are expected to come with InvITs. 

ICRA said the removal of dividend distribution tax (DDT) had partially diluted the pass-through benefit available with InvITs. And a higher tax incidence in the hands of the unitholders will result in lower net-yield and reduced internal rate of return (IRR). “Domestic unit holders are likely to witness a 34 per cent drop in returns while foreign investors would witness around 22 per cent decline in returns. Overall, the impact of higher tax incidence for unit holders may play spoilsport, making equity raising challenging for InvITs,” said Shubham Jain, senior vice-president, ICRA.

The note said amendment in the definition of business trusts to include unlisted privately placed InvITs would lead to tax parity between unlisted and listed private placed InvITs. And this could result in unlisted InvITs gaining prominence due to lower compliance cost.