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The March quarter, final one of the current financial year, might put the latest financial instrument to ease infrastructure funding to a litmus test. As regulatory approvals begin, infrastructure companies are preparing to hit the market with some of the first infrastructure investment trusts (InvITs) the country would see.
At least three road companies are in an advanced stage of working out approvals to raise funds through the InvIT model. Companies planning to raise some of these early funds do not expect the clutter to negatively impact investor response. Some also expect the initial success of these InvITs to change the course of mergers and acquisitions (M&As) in this sector.
Reliance Infrastructure and IL&FS Transportation Networks (ITNL) have both said they’re looking to raise funds through InvITs in the March quarter. R-Infra aims to raise up to Rs 3,000 crore through a public listing of its trust for 10 road projects; ITNL looks to raise RS 2,500 crore through private placement of the trust for four of its road assets.
IRB Infrastructure Developers has also filed an InvIT draft prospectus to raise Rs 4,300 crore for six road assets.
“We believe there is enough appetite in the market and the response has been encouraging. Our set of assets are also different from the others, as we are putting our annuity projects in the InvIT at present,” said Dilip Bhatia, chief financial officer at ITNL.
Outside the road sector space, Sterlite Power filed a draft prospectus for an InvIT fund this month to raise Rs 2,650 crore.
The proposed InvITs would invest in infra projects either directly or through Special Purpose Vehicles. These would allow companies to unlock tied capital in completed projects, while aiding in financing and refinancing on others. The intent in allowing InvITs is to lessen domestic loan exposure to the sector and bring more foreign capital.
This new instrument for fund raising is emerging as an alternate to M&As in the road sector. R-Infra was earlier trying to sell its roads division; the plan has been altered for the InvIT option.
“InvITs are an additional source of raising long-term capital. These provide developers an opportunity to stay with the assets and partially divest from it. An M&A might not allow that,” said Bhatia of ITNL. The company does not at present aim to look for buyers for any of its road assets beyond the planned InvIT.
On the sidelines of Larsen & Toubro’s post-results press meet last month, S N Subrahmanyan, deputy managing director, said the engineering conglomerate was open to all options for monetising some of its road assets, an InvIT among these. It is one of many infra companies which have been looking for buyers for some of its assets.
“The InvIT structure is helping infra projects get converted into yield products, rather than equity products. People turn averse to equity products. If InvITs are successful, it will open the floodgates and M&As might lose sheen for some time,” said an official from a company planning to raise funds through InvITs.
M&As in the road sector do face a host of issues, such as less investable projects and difference in seller-buyer price expectations.
Sector experts believe as InvITs gain significance among road developers, it could help set the tone of acquisitions for under-construction infra assets. “Once the first one or two succeed, I expect InvITs to pick up rapidly, as it is a good option for monetising assets. M&As might not get severely impacted, as the risk-return expectations are different. With InvIT as a potential exit, it could encourage more investors to enter during the construction phase,” said Manish Agarwal, partner at consultancy PwC India.
