Real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) have raised capital of over $9.7 billion in India, according to an EY report.
The EY report titled 'REITs and InvITs - financing urbanization and infrastructure in India' states that both fundraising avenues - REITs and InvITs - are gaining traction in India similar to other developing countries.
The EY report explains that REITs and InvITs can be used to attract private investments in the infrastructure and real estate sectors by mitigating challenges such as funding requirement, more long term capital, optimal leverage, limited exit options and corporate governance issues.
According to the report, InvITs are expected to play a key role in the monetisation of existing projects in some sectors namely roads and highways, conventional power, renewable energy, airports, railways, digital infrastructure, etc.
The report mentioned that due to favourable government policies and a long-term investment outlook, many marquee investors including sovereign and pension funds are continuing to invest in trusts. Investors are benefiting from receiving regular cash distributions, stable yield and opportunities for sponsor(s) to expand their asset base, explains the report.
The National Infrastructure Pipeline announced by the Centre has estimated a funding requirement of over $1.4 trillion by 2025. As per the report, early performance trends of REITs and InvITs in the country are encouraging. It added the combined m-cap of the three listed REITs in India is currently over $7 billion and more than $10 billion for InvITs.
Commenting on the issue, Gaurav Karnik, Partner and National Leader - Real Estate, EY India said, "InvITS and REITs will play a significant role in funding the Government's infrastructure plans as well assist in meeting its asset monetization plans and at the same time enable deleveraging existing balance sheets which would in turn help meet the capitalization requirements of banks."
REITs and InvITs are primarily governed by the SEBI Infrastructure Investment Trusts Regulations, 2014 and SEBI Real Estate Investment Trusts Regulations, 2014, and various circulars issued under these regulations.
Sandip Khetan, Partner and National Leader, Financial Accounting Advisory Services (FAAS), EY India said, "Accounting for REIT/InvITs can be complex with multiple legal entities being involved and the interplay of various regulations. Having the relevant structure in place early and evaluating the relevant tax, accounting and other implications would allow sponsor(s) to make the most of this increasingly popular route to funding."
The Centre along with SEBI and other regulators have played a proactive role in popularising and promoting these investment trusts, according to EY.
EY stated the recent step by SEBI on the reduction of minimum subscription size and trading lot for InvITs/ REITs, is expected to boost liquidity of instruments further. Consistency in financial reporting, better transparency (benchmarking) and understandability for overseas investors are key ingredients for long-term success, the firm explained.
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