Country's maiden InvIT offering garners good response

IRB Infra InvIT fund sees eight times more demand than units on offer

The country's maiden offering of infrastructure investment trust (Invit) garnered encouraging response, opening a new capital raising avenue for infrastructure and real estate companies. The Rs 5,000-crore initial public offer (IPO) by IRB InvIT Fund on Friday garnered eight times more demand than units on offer, attracting bids worth nearly Rs 22,000 crore. Given the attractive projected yield on offer, the IPO saw heavy demand from overseas investors.

The institutional portion of the offering saw 11 times subscription, while the non-institutional segment witnesses 6 times subscription. Nearly, half of the bids in the institutional portion came from foreign institutional investors (FIIs), while domestic institutions were seen relatively cautious. High networth individuals (HNIs) also made aggressive bids, anticipating good listing gains.

"The issue saw good response from all categories of investors. This issuance opens up a new avenue in infrastructure financing introducing the concept of unit capital. We would see considerable amount of money being raised through this route in the next few months," said Shilpa Kumar, managing director, ICICI Securities, one of the investment banks handling the issue along with IDFC Bank and Credit Suisse.

Industry players say Sterlite Power Grid and Reliance Infrastructure are in the process of launching Invits in the near-term.

Experts say given the high yield on offer relative to bonds, the product has enthused FIIs.

Philip Capital in a note said internal rate of return (IRR) for IRB Invit Fund worked out to 12.5 per cent, translating into yield of around 11 per cent in the initial years. In comparison, the benchmark 10-year government security offers a yield of around seven per cent, while lower-risk corporate bonds offer between 100-200 points higher.

"In the offer document, IRB had sought an enterprise value of Rs 7,900 crore for the InvIT, which it is now listing at Rs 5,900 crore. At current valuations, it is 'selling' its projects at a virtual cost of 12.4 per cent (implied IRR) and one-time book value," said Vibhor Singhal of Philip Capital in a note.

The price band for the IRB Invit Fund was Rs 100 to 102 per unit. In the IPO, investors had to apply for a minimum of 10,000 units and then in multiples of 5,000 units.

The InvIT trust has six operational road assets and it plans to use the proceeds from the IPO for debt repayment of its special purpose vehicles (SPVs) created for the toll-road projects.

"Successful listing of IRB's InvIT will pave the way for more developers to take a similar course and transfer their build-operate-transfer road assets to an InvIT. We expect ITNL, Ashoka, Sadbhav, Reliance Infra, and Essel Infra to be the most likely candidates to follow suit," said Singhal.