New InvIT norms to help infra firms in simplifying structure

With the Securities and Exchange Board of India (Sebi) on Friday further relaxing guidelines for infrastructure investment trusts (InvITs), infrastructure companies can expect to unlock greater liquidity and a simplified structure.

Sebi on Friday reduced the required mandatory sponsor holding in InvITs to 15 per cent and also allowed InvITs to invest in a two-level special purpose vehicle (SPV) through holding companies. Sebi has also removed the limit on the number of sponsors of InvITs, allowing consortiums of multiple developers and investors which hold investments in infrastructure projects to explore the InvIT option.

These two changes, companies and analysts said, that will help in simplifying the holding structure and allow companies to free up more cash locked in completed infrastructure projects.

Sebi in a press statement on Friday said it will rationalise the requirements for private placement of InvITs. However, the regulator didn’t share further details. Analysts said the fine print would be crucial to further understand the full impact of the initiative.

So far, Sebi has registered three InvITs — IRB InvIT fund, GMR InvIT and MEP InvIT. “The change in the sponsor holding limit is a welcome step, but my personal view is if they reduce it too much, there is no skin left in the sponsor of the game. It is a good move for the sponsor, but not sure if the investors will be willing to come in the new product,” said Virendra Mhaiskar, chairman and managing director, IRB Infrastructure Developers. Mhaiskar added the two-level SPV structure is an operational requirement and a welcome move but will not impact IRB as most of its assets are held in a single-level SPV structure.

IRB Infra had in September filed its draft red herring prospectus with Sebi to list its InvIT fund. Tollways operator MEP Infrastructure Developer is another company which plans to file a DRHP for its InvIT soon.

Jayant Mhaiskar, vice-president and managing director for MEP Infrastructure, also welcomed the change. “We have an in principle approval and are in the process of filing our draft red herring prospective shortly. Allowing a larger number of sponsors helps companies for assets which are not 100% held subsidiaries. The move helps companies with multiple investors in the project.”

Analysts agree with company officials that changes are more structural in nature. “These are just structural changes and give the infrastructure companies who have a complex structure some leeway. What we now need to see is at what valuation these InvITs will come at,” said Adhidev Chattopadhyay, analyst with Elara Capital.

The move could help companies like Larsen and Toubro, which holds infrastructure assets through a multiple-SPV structure. “There is a holding company for each infrastructure asset. Mostly investors and developers are at the holding company level. In the earlier situation, what would have happened is they would have required to restructure the holding and then set up the InvIT which would have involved both time and transaction cost, now that will not be required,” said Madhav Poddar, tax partner-real estate, EY.