India’s first Infrastructure Investment Trust (InvIT) has been launched as public issue of IRB InvIT Fund, sponsored by IRB Infrastructure Developers (IRB ID).
The IRB InvIT Trust will have six completed road assets covering 3,000 km spread across five States and an average balance concession period of 16 years. The Trust will have 100 per cent ownership of all six road assets.
Infrastructure Investment Trusts:
An Infrastructure Investment Trust (InvITs) is like a mutual fund, which enables direct investment of small amounts of money from possible individual/institutional investors in infrastructure to earn a small portion of the income as return.
InvITs work like mutual funds or real estate investment trusts (REITs) in features. InvITs can be treated as the modified version of REITs designed to suit the specific circumstances of the infrastructure sector.
Sebi notified the Sebi (Infrastructure Investment Trusts) Regulations, 2014 on September 26, 2014, providing for registration and regulation of InvITs in India. The objective of InvITs is to facilitate investment in the infrastructure sector.
Inv-ITs help companies monetise healthy infrastructure assets and provide a channel for investors to buy a stake in infrastructure projects.
The money raised through the fund can be used only to buy infrastructure assets, both in the form of equity as well as debt. But the catch is, that of the total assets bought, the fund is required to invest at least 80 per cent in revenue generating infrastructure asset.
The rest can be invested in under-construction infrastructure asset or securities of infrastructure companies.
The trust distributes a proportion (in the case of IRB Inv-IT fund, it is 90 per cent) of the income generated from these projects to investors. So the toll revenue earned by the road projects and other revenue streams including interest and dividend earned from other investments, will have to be distributed.
The Inv-IT is managed by an investment manager. Since these instruments carry higher risk, the entry barrier for investment is high. For instance, minimum investment in the primary offer of IRB Inv-IT is ₹10 lakh while the lot size in the secondary market is ₹5 lakh. The sponsor is mandated to hold minimum 15 per cent of the equity for a minimum period of three years from the date of issue.