IRB, GMR seek Sebi nod for first infrastructure investment trust

Mumbai: IRB Infrastructure Developers Ltd and GMR Infrastructure Ltd have sought the capital markets regulator’s approval to launch India’s first infrastructure investment trust (InvIT).

In the application to the Securities and Exchange Board of India (Sebi), both IRB and GMR have identified assets they want to list under these trusts.

InvITs are trusts which manage income generating infrastructure assets, typically offering investors regular yields and a liquid method of investing in infrastructure projects.

InvITs are expected to encourage higher foreign investment in the Indian infrastructure sector, reduce the burden on the banking system, and allow developers to unlock tied-up capital.

“Both these companies have applied to Sebi seeking approval for launching an InvIT. IRB Infrastructure was the first to apply to the regulator and it has identified around seven projects to list under the same,” said a person directly familiar with the matter, who spoke on condition of anonymity.

The valuation of IRB’s assets is about Rs.6,000-Rs.7,000 crore, which includes equity and debt. The company is yet to finalize how much equity it will sell through the InvIT, said a second person familiar with the development.

“The firm is also finalizing issues on the series of payouts that would happen from the listing. It is expecting to launch the same in next few months once the approval for the trust is in place,” this person said.

IRB Infrastructure has hired three investment banks; two more are expected to join the process by end of this month. Once they receive approval for the trust, IRB Infrastructure will file its so-called draft red herring prospectus.

Virendra Mhaiskar, chairman and managing director of IRB Infrastructure, declined to comment on the valuation and the timeline for the fund raising programme.

“We have filed our papers with Sebi and are waiting for their approval,” said Mhaiskar.

On 23 September 2015, Mhaiskar outlined plans for an infrastructure investment trust at the annual general meeting of the company.

IRB will act as the sponsor of the trust; it has constituted a committee which will oversee the transfer of assets to the trust.

It was the first company to announce plans for an InvIT.

According to the firm’s website, IRB has 16 operational road assets (BOT), with total investment of Rs.11,767.5 crore.

GMR Infrastructure, on the other hand, is looking at a mix of both road and transmission line assets, according to two people, including the person cited in the first instance.

“They have filed with the regulator for the registration of a trust and are awaiting approval for this. The GMR trust will be a mix of operational road and transmission assets, as most of their completed and operational assets, outside of power, belong to these two categories. They are currently working on finalizing which particular assets that they would put under the trust,” said a fourth person involved in the deal.

GMR has seven highway projects across India measuring a total length of 2,851km, out of which six are operational and one is in the development stage. According to the firm’s website, the company has invested about Rs.4,100 crore in these projects.

On the transmission side, the GMR group has two assets in Rajasthan, comprising 366km of power transmission lines.

In an emailed response, a GMR Infrastructure spokesperson said, “GMR group continues to explore new avenues of capital recycling, reduction of debt and new opportunity evaluation on an ongoing basis.

In line with this, Infrastructure Investment Trust (InvIT) is a new product launched by the Sebi in line with global practices, and group continues to evaluate the same. If there is any reportable material development, group shall report the same to relevant authorities and media partners.”

The spokesperson added, “GMR Group’s presence in various domains of infrastructure provides it a unique advantage in offering various assets classes under InvIT and make it truly an infrastructure trust. The portfolios of assets are yet to be finalised as this would depend on investors’ feedback, appetite for investment into this platform, as it is a new product, and certain regulatory amendments from the Sebi for which consultation paper has been released.”

According to the people involved in the development, InvITs should deliver yields of 10-11% to investors, making them slightly more attractive to foreign investors.

“At present, bankers are pitching this asset class to foreign investors given the product has low yield. Domestic institutional investors are still trying to figure out the structure. We are expecting most of the debt/bond market investors to participate,” said the first person mentioned above.

According to Gaurav Karnik, partner at advisory firm EY, global pension funds would be keen to invest in these structures. “InvITs as an asset class has more stringent governance rules around it, including the fact that there has to be more than one valuer involved in the process, making it attractive for the foreign investors, especially pension funds which globally invest in this product. They do not seek higher yields but invest in good operational assets which InvITs will bring in the market,” he said.

Still, the launch of these InvITs is still some time away as firms await more clarity from Sebi on listing and other regulatory aspects. “There are a couple of regulatory changes expected in the product by end of the month, hopefully that will be positive, helping companies to go ahead with working on the launch of the trusts,” said one of the persons cited above.

According to Karnik of EY, dividend distribution tax is another area that needs clarity.