Saturday Brain Storming Thought (137) 30/10/2021
COMPILED BY ER. AVINASH KULKARNI
INFRASTRUCTURE INVESTMENT TRUSTS (InvIT)
An Infrastructure investment trust (InvITs) is like a mutual fund, which enables direct investment of small amounts of money from possible individual/institutional investors in infrastructure to earn a small portion of the income as return
InvITs can be established as a trust and registered with SEBI
InvITs can be treated as the modified version of REITs designed to suit the specific circumstances of the infrastructure sector
InvITs
Notification by SEBI Regulations 2014 dated 26 September 2014
Elements of InvITs
1) Trustee
Inspects the performance of an InvITs is certified by SEBI and he cannot be an associate of the sponsor or manager
2) Sponsors
These are people’s who promote and refer to any organization or a corporate entity with a capital of Rs 100 Crore, which establishes the InvIT and is designated as such time of the application made to SEBI
Promoters/Sponsors, jointly have to hold a minimum of 25% for three years (at least) in the InvITs
3) Investment manager
He is an entity or limited liability partnership (LLP) or organization that supervises assets and investments of the InvITs and guarantees activities of the InvITs
4) Project manager
He refers to the person who acts as the project manager and whose duty is to attain the execution of the project and in the case of PPP projects
Regulation of InvITs
SEBI regulations 2014
SEBI has vide its circular CIR/IMD/DF/55/2016 dated 11 May 2016 provided the detailed guidelines for the public issue of units of InvITs
Types of InvITs
1) Investment in revenue-generating finished projects
It allows investment in revenue-generation finished projects and tends to invite investors through a public offering
2) Investments in projects under construction
Investors are allowed to invest in projects that are under construction or have been finished
Notably, this type opts for a private placement of its units
3) Privately placed unlisted InvITs
Only to institutional investors (Max 1000 investors)
Minimum Investment Rs 1 Crore
Advantages of InvITs
1) diversification
2) accrues fixed income
3) liquidity
4) quality asset management
5) investors
Receive dividend income on their investment f InvITs have surplus cash flow
6) Promoters
Can use the proceeds to reinvest in their portfolio projects
Disadvantages if InvITs
1) Regulatory risk
Change in taxation or policies concerning the infrastructure sector
2) Inflation risk
Inflation may increase the sector operating costs
3) Asset risk
The process of generating returns is often delayed
Prospects of InvITs in India
1) existing projects would be provided with substantial refinancing options in the long run
2) it would help disengage developers capital to facilitate reinvestment towards new infrastructure projects
3) it is expected to facilitate the refinancing of current debt with cost-effective capital for the long run
4) it would encourage international investors to invest in the Indian infrastructure sector
5) prospects of increasing opportunity to diversify an investment portfolio with the help of quality infrastructure assets remain
Purpose of InvITs
1) Encouraging and providing additional financing for investment in the infrastructure in India
2) supports diversification of ownership of infrastructure assets such as power transmission, roads, ports, renewable projects
3) trust is created by sponsors and the beneficiaries of the trust are the unitholders
4) InvITs aim to provide stable long term cash flows to its unitholders
Lists of Indian InvITs
Public InvITs
1) IRB InvITs fund (highways)
2) India Grid Trust
(Power Transmission)
Private listed InvITs
1) Indinfravit Trust (highways)
2) Oriental Infra Trust (highways)
3) India Infra Trust (Gas transmission)
4) Tower infrastructure trust (Telecom towers)
Private unlisted InvITs
1) IRB infrastructure trust (highways)
2) Digital Fibre infrastructure trust(Telecom – fibre optic)
Rights of unit holders in InvITs
1) right to receive returns through cash distributions made by trust
2) right to vote on matters pertaining to acquisition of new assets or borrowing
3) right to vote on related party matters
4) right to vote on matters such as appointment or change of the investment manager
5) right to vote on exit of the sponsor
6) right to receive periodic disclosures like annual report, valuation report, quarterly / semi annual financials etc
Taxation for InvITs
The interests and dividends received by InvITs from the SPVs is exempt from tax
Investment trusts pay the standard tax on their investment income, but not on capital gains
Only domestic companies, charitable trusts, religious trusts, hospitals and education institutions won’t need to pay tax on dividend
Investment trusts are subject to corporation tax on their income at normal corporation tax rates
Compiled by:-
Er. Avinash Kulkarni
Chartered Engineer
Govt Regd Valuer
IBBI Regd Valuer
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