Infra developers awaiting clarity from SEBI to form InvITs

MUMBAI: Infrastructures developers such as IRB, GMR and IL&FS are keen to launch their infrastructure investment trusts after Sebi announced guidelines last week, but may hold their plans for more clarity on disclosure and accounting norms.

An infrastructure investment trust (InvITs) offers an opportunity to promoters of projects to sell their stake in completed projects to the trust, which in turn can raise long term and tax-free funds from unit holders. Markets regulator Securities & Exchange Board of India (Sebi) issued the norms for public issue of units of these InvITs which are likely to pump in liquidity into an otherwise cash-strapped infrastructure sector.

“We are keen to tap this route for fund raising but until we have more clarity on accounting standards, disclosure and prospectus norms, we cannot go ahead with it. We expect Sebi to come out with guidelines on that soon so that this fund raising option can be exercised,” said IRB Infrastructure Developers’ promoter and Chairman Virendra Mhaiskar.

IRB and GMR Infrastructure have already received the regulator’s approval for the trust while others such as Infrastructure Leasing & Financial Services have sought the regulators nod.

L&T is also considering this route for fund raising. “We will look at it if we have the comfort that it will get long term investors since it is a product modelled for institutional and long term investors. Investors looking for short term gain may get frustrated if they invest in it,” L&T Chief Financial Officer R Shankar Raman said.

The guidelines announced by Sebi last week give these developers more flexibility by allowing sponsors to reduce their holding in the trust to 10% from 25% mandated earlier. It also allows them to invest in two-level special purpose vehicle structure and increase the number of sponsors to 5 from 3. But companies may have to tweak their plans and may be able to raise less than what they had planned initially after Sebi detailed the eligibility criteria for projects that can be included.

“We were earlier hoping to put all 12-15 of our projects into a trust, which would have had an enterprise value of Rs 15,000 crore. But according to the guidelines, only 6 of our projects are eligible which have a total enterprise value of Rs 7,000-8,000 crore,” said Mhaiskar.

Most infrastructure developers are struggling with low cash flows and have heavily leveraged balance sheets, which constraints their ability to bid for new projects. Several projects, and even holding companies, are on the block but there have been far too few deals.

“Very few deals are going through in the secondary market even though a lot of projects are looking for equity investments as there’s a valuation mismatch. We will have to see what kind of valuation these trusts can fetch as it is a new route and there could be some teething issues,” said Shubham Jain, vice president at the rating agency ICRA.

Infrastructure developers are refraining from bidding for new projects given their financial constraints with a number of bids for Build-Operate-Transfer (BOT) road project falling to 3-5 from about 20 during 2011-12.

Credits ET Realty

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