Infra firms line up for InvIT offer after IRB success

The success of the initial public offer of equity in IRB Infrastructure Developers’ infrastructure investment trust (InvIT), the country’s first such, should spur confidence for more to come up.

Sector experts expect around half a dozen such InvIT issuances by the end of the current financial year. Reliance Infrastructure (R-Infra) and Sterlite Power Grid ventures have already filed their draft prospectus for doing so, with the Securities and Exchange Board of India (Sebi). Two other companies considering an InvIT launch are MEP Infrastructure and IL&FS Transportation Networks.

Investment bankers say two more infrastructure entities are identifying projects that could be a part of an InvIT issuance.

InvITs are trusts formed to invest in infrastructure projects either directly or through special purpose vehicles. These would allow companies to unlock tied capital in completed projects, while aiding in financing and refinancing on infra projects. The aim in allowing these is to lower the domestic loan exposure to the sector and bring in more foreign capital.

“The success of the IRB InvIT sets a path for many more. The regulatory framework has evolved significantly and there is good appetite from investors for such products. Yields in the debt space are low, while valuations on the equity side are high. Hence, products like InvITs will find good demand; they offer yield pick-up and have growth potential,” said Shilpa Kumar, managing director, ICICI Securities, one of the managers for the IRB issue.

Adding: “The IRB InvIT had road assets but in the future, we could see Invits with other kinds of assets, like power transmission. This could give diversity in terms of associated risks and in yields.”

Sterlite Power Grid filed a draft prospectus with Sebi in December last year, for ~2,650 crore. R-Infra filed a revised draft with Sebi early this month, reducing the proposed issue size to ~2,500 crore from the earlier ~3,000 crore. R-Infra is now offering seven of its road projects in the InvIT, against the earlier plan of 10 of these. The reduction in issue size was due to regulatory issues over the project completion period.

Market participants say products like InvITs and real estate investment trusts would provide a lifeline for infrastructure and real estate companies, hit by high debt levels.

“The infrastructure sector will now get much- needed capital. This will not only allow them to reduce debt but to start looking into new projects,” said Dina Wadia, joint managing director, J Sagar Associates.

Experts say some concerns also need to be addressed. For instance, there is concern about the liquidity in an InvIT, due to the high minimum size. An investor needs to shell out at least ~10 lakh if he wants to invest in the product.

The overall outlook on the sector could also have an overhang on InvITs.

A fund manager, on condition of anonymity, said his fund house was taking a wait and watch approach, as stress in the overall sector could impact the risks and yields. Mutual funds (MFs) and insurance companies are also being cautious on the product.

In the IRB InvIT, of the bids received for 1.4 billion units in the institutional category, only 100 million were from domestic MFs. Other domestic institutions like insurance companies and banks bid for only 51.3 mn units.