India Inc seeks to pare debt via InvITs as foreigners are keen to invest

High interest rates, low-risk model key attractions for overseas investors

As India’s largest corporation Reliance Industries (RIL) gets ready to launch its third infrastructure trust (InvIT) to raise funds and reduce the firm’s group debt, bankers said InvITs are not only helping India Inc reduce their debt and finance costs, but are also giving attractive returns to the unitholders — consisting mainly of long-term foreign investors.
 
“It’s a win-win deal. While Indian companies reduce debt without actually selling the entire stake, it gives an opportunity to unitholders to get high returns without owning the asset,” said a banker.
 
Several other Indian companies including Vodafone Idea, National Highways Authority of India (NHAI), and Sterlite are planning similar structures to hive off their revenue-generating assets as investors
 
are attracted to high returns and a listing of the units on stock exchanges gives them an exit option.
 
“The success of the previous two InvITs by RIL, for its gas pipeline and telecom towers projects, shows the same structure will be followed by other companies to reduce their debt,” said an investment banker who advises corporations on debt resolution. In the two previous InvITs launched by RIL, Canadian financial powerhouse, Brookfield, was the sponsor of the trust which holds the underlying assets.

 
Brookfield inves­ted Rs 25,215 crore in Tower Infrastructure Trust and these proceeds were used by RIL to retire the firm’s debt. The transaction was completed on September 1 and the units were listed on BSE. On Thursday, RIL filed the prospectus for its third InvIT, which will hold Jio’s fibre optic network as its underlying asset. The personal entities of Ambani are the sponsors of the fibre trust.
 
The fibre trust will hold Rs 77,458 crore worth of debt, and help RIL become a debt-free company as promised by its chairman, Mukesh Ambani, to shareholders.
 
“There are a lot of enquiries from other high-debt companies to reduce their debt via InvITs, and we are expecting several companies to come forward and launch InvITs in the coming months. As it is a win-win deal, investors are keen to invest in these structures,” said the banker.

One of Air India’s bidders is also planning to launch an InvIT, which will house the airline’s revenue-generating assets. If its bid is accepted by the government, Interups, a US-based fund, said it will launch an InvIT structure with underlying assets such as ground handling and training centers to raise funds. “The idea is to attract investors to the airline from long-term pension funds based in North America. We think the InvIT structure will get good traction among investors,” said an Interups official.