They say, the third time you try to do something, it will work. For Infrastructure Investment Trusts (InvITs), it could as well be a case of 'third time's the charm.' They were first notified in 2014 but failed to take off. After amendments in 2016 and 2017, InvITs are now gaining ground. As per India Ratings, the first four InvITs led by IRB, IndiGrid etc could reduce developers' debt worth Rs 13,000 crore, and deleverage balance sheets by refinancing remaining debt at lower costs. InvITs allow developers to monetize assets, attract low-cost, long-term capital and reduce the funding pressure of banks. Though relatively less explored in India, they are prominent in Singapore, Hong Kong, and Malaysia.
Real estate and infrastructure has a multiplier effect on economic growth, creating employment, stimulating demand, and facilitating industrial development. In worst times, it can equally unleash its ugly side. In the past, banks doled out bricks of cash to companies, but now, most of them are stuck. Of the $45 billion worth projects, only $2 billion were completed during 2015, due to land acquisition delays, tardy environmental and regulatory approvals. Infrastructure projects have long gestation and require patient capital, something banks lost appetite for, given the deadly backlog. Many companies’ equity is also locked up, precluding them from undertaking new projects. In this backdrop, InvITs free up developer capital for reinvestment, replace high-cost debt and improve governance.
Sebi is right in not opening it up for small investors. But for institutional investors, attractive yields amid interest rate volatility, and competition from similar domestic and global products is a challenge. Companies may find it hard to obtain premium valuation for assets, which depends on parent company's credibility (only a handful have deep pockets), quality of underlying assets, government policies, and sector-specific business fluctuations. Unless these issues are sorted, InvITs run the risk of ending up as a one-hit wonder.