Friday, June 10, 2016

InvITs- A New Investment Gateway for Infrastructure Growth in India

Introduction
1. Large scale, efficient Infrastructure is the basic requirement for any economy to function competitively. This is also essential to maintain and updated these infra for continuous growth and smooth running of economy.
With the vision of Make in India, our Prime Minister has given much emphasis on infrastructure growth and taking various steps to revive the sector. Several infrastructure projects which are under development in India are on hold or delayed due to various reasons. These infra systems are high-cost investments.
The infrastructure projects comprising roads and highways, ports, power, Communication and water sanitation projects etc. have been facing severe liquidity crunch due to the limited funding options, high interest cost and lack of investor interest. Witnessing the requirement for infrastructure in a country like India coupled with the huge funding requirements of the infrastructure developers, the structureof InvIT seems to be a much needed and a welcome introduction.
Finance Minister Mr. Arun Jaitely announces exemption from dividend distribution tax (DDT) by a domestic company to business trust (InvITs) in his speech in Budget 2016 . This announcement has suddenly given momentum to attract investor in Infra companies.

What was the Necessity of InvITs?
2. Infrastructure projects require huge capital with long term involvement. Any delay or failure in project may sink entire fund therefore investor refrain from this sector moreover small investor cannot participate with the vision of earning on investment. The major reason for envision of InvITs are as follows:
2.1 Providing wider and long-term re-finance for existing infrastructure projects.
2.2 Unlocking of tied up capital
2.3 Attracting foreign funding
2.5 Diversity of portfolio
What is InvITs?
3.1 Infrastructure Investment trust (InvITs) are another form of mutual fund which enable small investor to invest in infrastructure sector. As the name implies, infrastructure investment trust invest pooled money of investor in the sector and give return in the form of dividend to their unit holders.
InvITs can participate in investment directly or thru SPVs but in case of PPP model investment can be made only via SPVs.
InvITs are regulated by SEBI (Infrastructure Investment Trusts) Regulation, 2014. Projects which will qualify in the definition of Infrastructure have been cited in notification dated 07.10.2013 issued by Ministry of Finance).
Types of InvITs
4.1 InvITs have been allowed to invest in two categories:
a.

Investment in completed and projects having revenue
b.

Investment in projects which are under construction
Registration and Structure of InvITs

5.1 As per InvITs regulation, InvIT shall obtain a registration from SEBI in a manner as prescribed. A trust will be formed and registered for InvIT operation. An application for grant of certificate of registration as InvIT shall be made by the sponsor in Form A as specified in the Schedule I and shall be accompanied by a non-refundable application fee as specified in Schedule II..The trust deed must have main objective of under taking InvIT in accordance with the InvIT regulation.
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