NHAI To Monetise Its Highways Through InvITs

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The company has recently started meeting investor groups, as it prepares to come up with its InvIT issue.
The issue will enable NHAI to monetise its completed National Highways that have a toll collection track record of at least one year.

What are InvITs?

Infrastructure investment trusts are institutions similar to mutual funds,
Which pool investment from various categories of investors and invest them into completed and revenue-generating infrastructure projects,
Thereby creating returns for the investor.
The capital market regulator notified the Sebi (Infrastructure Investment Trusts) Regulations, 2014 on September 26, 2014,
These trusts are likely to help facilitate investment in the infrastructure sector.
Structured like mutual funds, they have a trustee, sponsor(s), investment manager and project manager.
While the trustee (certified by Sebi) has the responsibility of inspecting the performance of an InvIT, Sponsor(s) are promoters of the company that set up the InvIT.
While the investment manager is entrusted with the task of supervising the assets and investments of the InvIT,
The project manager is responsible for the execution of the project.
NHAI’s InvIT will be a Trust established by NHAI under the Indian Trust Act, 1882 and SEBI regulations.
The InvIT Trust will be formed the objective of investment primarily in infrastructure projects.

While the fund will be raised by monetising the
completed NHs,
The regulations say that the project SPV would distribute not less than 90% of net distributable cash flow to the trust in proportion of its holding in each of the project SPV.
The unitholders will get the distributions at least once every six month.
The fund raised can be invested in the project SPVs by way of an issue of debt.
The trust can utilise it to repay their loans or even for prepayment of certain unsecured loans and advances availed by such project SPVs.

It is important to note that in October 2017, the Centre had launched Bharatmala Pariyojana, its flagship highway development programme,
For development of 24,800 km of roads at a total investment of Rs 5,35,000 crore.
In order to complete the projects,
NHAI needs adequate funds and one of the options is to monetise the completed and operational NH assets and Offer attractive schemes to private players to invest in construction of National Highways.

At a time when private sector investment in the economy has declined, fund-raising by NHAI and spending on infrastructure will not only provide a fillip to the economy, but will also crowd-in private sector investment.
So NHAI’s InvIT offer, which is expected to come soon, is a way for the government to tap alternative sources of financing to boost public spending in the roads and infrastructure sector.

A retail or even a large financial investors may not be typically able to invest in infrastructure projectssuch as roads, power, energy etc.
InvITs enable these investors to buy a small portion of the units being sold by the fund dependingupon their risk appetite.

The Indian InvIT market is not yet mature and has supported formation of 10 InvITs till date — in roads, power transmission, gas transmission and telecom towers sectors —
Of which only two are listed, according to a report of the task force on National Infrastructure Pipeline.
The InvITs listed on the stock exchange are IRB InvIT Fund and India Grid Trust.