In a big push to core projects that have been facing a paucity of funds, the government is set to launch infrastructure investment trusts by August this year.
“Market regulator Sebi will notify these trusts in about three weeks along with the real estate investment trusts (REITs),” finance secretary Arvind Mayaram told The Indian Express.
To be run on the line of REITs that work on pooled investments, the infrastructure investment trusts (InvITs) will help project developers free up their balance sheets from ongoing projects and raise cheaper and longer duration funds for new projects.
Under the plan, project developers can create and register a trust under the Indian Trusts Act to which they can sell 100 per cent of the special purpose vehicle that holds their ongoing projects such as tolled roads or airports. The trust would have a controlling stake in the infrastructure projects, allowing the developer to exit.
Based on the underlying shares, the trust would then issue shares to investors, which would be listed on the bourses. Earnings from the projects would be distributed by the trust to investors as dividend while the project developer would only get a management fee. The trust would be a tax pass through and retire the debt of the project developer, freeing him to take up new projects.
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“At present, what happens is that even if the developer has the technical capability to execute more projects, he does not have the financial capacity as he has already taken up bank loans to implement his ongoing projects,” said Mayaram, adding that the InvITs would help developers unlock their capital and take up more projects. A lot of companies have already shown interest in the plan, he said.
Finance minister Arun Jaitley in the Union Budget had announced incentives for REITs as well as the setting up of InvITs for PPP and other infrastructure projects. “These structures would reduce the pressure on the banking system while also making available fresh equity,” he had said, adding that these would give a boost to infrastructure and other construction sectors.
The move comes in a year when the NDA government has also announced development of airports in Tier I and II cities, expansion of the road and railway networks as well as well 16 new port projects.
To meet the infrastructure requirements of the country, the Economic Survey had estimated $1 billion of investments in the sector over the next five years.