InvITs issues will raise Rs.2 lakh crore over the next five years, says ICRA study.
The report says, “Assets from roads, telecom fibre, power transmission and generation are expected to be on the block. The most keenly watched would be National Highway Authority of India (NHAI) InvIT, given its size and track-record of operational toll road projects. However, for InvITs to succeed a conducive regime is the key and much would depend on regulatory and tax regime.”
So far, InvIT issuers have raised Rs.220 billion from investors, while another Rs.325 billion is in advanced stages. Tower Infrastructure of Reliance Jio, the second InvIT from IRB – privately placed with GIC and acquisition of eight road assets by L&T’s IndInfravit from Sadhbav are the ones in advanced stages.
Shubham Jain, Senior Vice-President, ICRA says, “InvITs are an attractive vehicle for developers to unlock capital deployed in operational projects and help in reducing the cost of debt for infrastructure projects. Foreign institutional investors find InvITs attractive due to their stable long-term returns, relatively lower risks because of operational portfolio and better corporate governance. Besides such vehicles have better credit profile due to benefits of cash flow pooling, diversification of assets and regulatory cap on both leverage and proportion of under construction projects.”
At present, infrastructure financing is extremely bank centric. Banks and NBFCs together account for more than 95% of Infra debt. While Infrastructure Debt Funds (IDFs) aim at taking out existing debt, InvITs facilitate unlocking capital (both debt and equity) and are therefore preferable.
The recent announcements in Union Budget FY2020-21 are expected to have a varied impact on InvITs. The removal of Dividend Distribution Tax (DDT) has partially diluted the pass-through benefit available to InvITs and dividend now being taxable in the hands of shareholder/unit holders will be negative as higher tax incidence in the hands of the unit holders will result in lower net-yield and reduced equity IRR, says the report.
Jain further said, “Domestic unit holders are likely to witness 34% drop in returns while foreign investors would witness around 22% decline in returns. Overall, the impact of higher tax incidence for unit holders may play spoilsport thereby making equity raising challenging for InvITs.”