India Inc takes InvIT, REIT route to raise funds in sinking market

Reports say that the global investors including Brookfield, Omers, Mubadala and ADIA are in early stage discussions with Tata Power to invest around $500-600 million in its renewable energy InvIT

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At a time when stock markets are in a tizzy around the world, the Indian corporates are actively raising capital through infrastructure investment trusts (InvITs) and real estate investment trusts (REITs). About seven-eight deals are in discussion stage right now, says a Mumbai-based investment banker, especially after the government waived the dividend distribution tax (DDT) that was announced in the recent budget.

Reliance Industries (RIL) has been in discussion with global funds to sell stake in Jio's optical fiber InvIT.

RIL earlier negotiated with Abu Dhabi Investment Authority (ADIA) and GIC of Singapore.

Reports say that the global investors including Brookfield, Omers, Mubadala and ADIA are in early stage discussions with Tata Power to invest around $500-600 million in its renewable energy InvIT.

Mindspace Business Parks REIT, which is backed by real estate developer K. Raheja Corp. and private equity investor Blackstone, filed the draft prospectus for its Rs 1,000 crore initial public offering (IPO), making it the second REIT to attempt a listing on the Indian bourses. The IPO will be tough in this market scenario.

Bengaluru-based developer Embassy and Blackstone had launched India's first public REIT, Embassy Office Parks REIT, in a Rs 4,750-crore IPO in March.

Power Grid Corp's InvIT, through which India's central transmission utility proposes to raise from the public about Rs 10,000 crore by listing specific units backed by a pool of assets, may be delayed because of the size of the issue.

National Highways Authority of India (NHAI) plans to raise Rs 40,000 crore through InvIT and it has been gearing up to place its first set of road projects with an InvIT in May.

Lenders to bankrupt Infrastructure Leasing and Financial Services (IL&FS) want to offload some of the company's poorly performing road assets into an InvIT by April.

IRB Infra, Larsen & Toubro (L&T), IDPL and Oriental Structural Engineering have raised money from public and private investors for road assets through their InvITs. IndInfravit completed acquisition of Sadbhav's road assets for Rs 6,300 crore.

Canadian Pension fund CDPQ has been considering to launch its InvIT with road assets worth Rs 2,400 crore.

India's biggest road asset investor Cube Highways and Infrastructure has been in talks with CDPQ, ADIA and Ontario Teachers' Pension Plan Board to sell part of its operational road assets through an InvIT.

A year back, Brookfield bought East West Pipeline (EWPL), earlier known as Reliance Gas Transportation Infrastructure, for a valuation of Rs 13,000 crore ($2 billion). Brookfield also bought Reliance Jio's telecom tower assets at a $7-8 billion valuation.

Experts suggest that InvITs may become a better option compared to other investments in the short to medium term. "With some recent changes made to the regulation by SEBI over the past several months, there is an expectation that the investment in InvITs is likely to grow manifold in the coming 12-24 months.  InvITs offers pre-tax annual return of 11-12 per cent over the next four-five years. In comparison, the equity market has fetched 8-9 per cent annualised return in the last five years," said Vishal Seth, Managing Director, Financial Reporting and Transaction Advisory, Protiviti Member Firm for India. InvITs are viewed as high dividend paying investments, said Seth.

Recently, the market regulator SEBI revised investment norms and permitted to fast-track rights issue by REIT and InvITs without filing the draft offer document. Also, in the last Budget, the government removed tax hurdle for private placement of InvITs, putting them at par with publicly listed InvITs. The budget also accorded tax pass through status to private unlisted InvITs. This status was available only to publicly listed InvITs.

The private unlisted Invit was introduced by SEBI in 2019, but did not get the same tax treatment as the listed ones. In this year's budget, the centre had proposed dividend distribution tax (DDT). The Centre made last week amendments in the Finance Bill 2020, which exempted the dividend earned by unit holders in REITs and InvITs.

In July 2019, SEBI had announced multiple relief measures for investment in InvIT -- a) leverage limit (the proportion of borrowed money that can be invested in the InvIT) raised to 70 per cent from 49 per cent  (except for private unlisted trusts), b) reduction in the investment threshold per lot to Rs 1 lakh from Rs 10 lakh, c) making it compulsory for InvIT to invest not more than 10 per cent of the fund in under-construction projects and d) mandatory distribution of at least 90 per cent of free cash flows once in six months.

Around $2 billion has been invested by mutual funds in InvITs during 2019. Credit rating agency ICRA estimates that Rs 2 trillion worth InvITs are likely to hit market over the next five years.

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