HYDERABAD : Infrastructure investment trust (InvIT) issuances will likely grow fivefold to over `2 lakh crore in the next two years, according to an estimate by CRISIL Ratings. The response to InvITs has been lackluster with just two listed trusts floated till June 2019, with a combined asset value of `20,000 crore. Along with two other unlisted InvITs, total assets under management are just about `40,000 crore.
CRISIL, however, anticipates that the regulatory changes by Securities and Exchange Board of India (SEBI) in April will pave way for new trusts. Sensing the need, SEBI relaxed the leverage norms to 70 per cent from the earlier 49. This is, however, applicable with some riders. Trusts must retain AAA credit rating along with a track record of six continuous distributions to unit holders. The leverage cap isn’t applicable to privately placed, unlisted InvITs.
“The relaxation in norms has accelerated adoption of InvITs as an asset class,” said Sachin Gupta, senior director, CRISIL Ratings, adding, “The impact can be seen in a slew of new InvITs being announced with the participation of marquee investors such as global private equity, and pension and sovereign wealth funds. Cumulative assets under InvITs are expected to increase to over `2 lakh crore in next two years.”
According to CRISIL, InvITs have invested in power transmission, roads and gas pipeline sectors. Some new trusts even announced plans to invest in sectors such as telecom and renewable energy. Stating that InvITs offer a low-risk investment opportunity for banks and other financial institutions, it said, tight regulations address key risks of the infrastructure sector including project risk and cash flow leakages.
This is possible as InvITs are barred from having more than 10 per cent of their assets in under-construction projects, insulating cash flows from project implementation risks. They are also mandated to have at least 90 per cent of free cash flows to be distributed at least once in six months, ensuring steady returns for unit holders. However, banks and financial institutions are staying away from these instruments due to regulatory restrictions, while retail investors are apprehensive, given that the two listed InvITs are trading below their issue price.