First InvIT by govt entity set for launch; NHAI files application with Sebi

Topics Sebi | InvITs | Reits/Invits rules

The projects with a record of tolling for at least one year would be placed under InvIT
The first infrastructure investment trust (InvIT) from a government entity is likely to take off by month-end, with the National Highways Authority of India (NHAI) filing an application with the Securities and Exchange Board of India (Sebi).

The NHAI plans to offer 19 projects worth Rs 35,000 crore under the InvIT model, of which two-three projects worth Rs 5,000-6,000 crore are expected to be taken up first.

Senior officials told Business Standard the projects being offered under InvIT would mainly be ones constructed on government-funded or in engineering-procurement-construction mode.

Under the InvIT model, assets are placed in an infrastructure trust where investors put in money. Income from these assets is given as dividend to investors.

The Union government is encouraging companies and departments to monetise assets for fundraising. Besides the NHAI, government-owned Power Grid Corporation also plans to monetise its transmission projects via InvIT, even though it has not filed for it with Sebi just yet.
InvIT would be the NHAI’s first asset monetisation model after it had earlier placed projects under the toll-operate-transfer (TOT) model. A joint venture of Macquarie and Ashoka Buildcon picked up the first batch of TOT projects in 2018 after paying an upfront fee of Rs 9,680 crore for nine national highway stretches.

Officials said the size of TOT packages would be reduced since investors had a lower risk-taking ability at the moment. Unlike InvIT, the responsibility of operation and maintenance in the TOT model is vested with the contractor. 

The Ministry of Road Transport and Highways had to cancel the process for the second tranche of TOT because of want of bidders. In the third round, Cube Highways emerged winner by quoting a price below the base price of Rs 5,362 crore set by the NHAI for eight stretches. The company issued a force majeure notice due to Covid-19 and also intimated that the period for fulfilling the conditions precedent in Article 4.1 of the concession agreement — which relates to financial closure and payment of concession fees — should be extended.

The NHAI in October 2019 invited bids for the fourth TOT bundle, but the size of the package was reduced to Rs 2,000 crore after an initial estimate of Rs 4,170 crore for seven stretches totalling 401 km.

The Union Cabinet later in December 2019 allowed the NHAI to set up InvIT. It approved setting up a trust under the Indian Trust Act, 1882, and complying with the Sebi (Infrastructure Investment Trusts) Regulations, 2014. It also gave the highway authority the flexibility of holding assets — either directly under the trust or through a special purpose vehicle (SPV) or holding company of the NHAI. “We are likely to form an SPV once Sebi registers the InvIT,” said an official.

The projects with a record of tolling for at least one year would be placed under InvIT. The money raised through monetisation would be used for further investment in the road sector. Some part of the tolling revenue would, need to be used for operation and maintenance of these highways. It is expected that long-term investors, including pension and sovereign funds, could invest in the NHAI’s InvIT. These projects would be more attractive than greenfield highway stretches, given there will not be any construction risks attached to them.

In October 2017, the Centre launched Bharatmala Pariyojana — its flagship highway development programme for the development of 24,800 km of roads — for a total investment of Rs 5.35 trillion.

With limited government funding and low private sector appetite, the NHAI is looking at various fund-raising models.

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