At a time when the economy is facing challenges and the pipeline of fundraising through public equity markets has almost gone dry, alternative financing vehicles like real estate investment trusts (REITs), infrastructure investment trusts (InvITs) and alternative investment funds (AIFs) have become the preferred choice for fundraising as there has been an exponential growth in funds raised and invested by AIFs over the last five years.
Data accessed from the Securities and Exchange Board of India (Sebi) website shows that from an investment of Rs 361 crore by AIFs at the end of March 2013, the cumulative investment by AIFs grew to Rs 1.25 lakh crore by September 2019. At the same time, cumulative funds raised by AIFs have risen from Rs 529 crore in FY13 to Rs 1.54 lakh crore in September 2019.
While in the first six months of FY20 AIFs have invested an additional amount of Rs 16,025 crore, in the 18-month period between March 2018 and September 2019, they have invested Rs 64,404 crore. In the 18-month period, the net funds raised amount to Rs 69,486 crore.
By comparison, fundraising through initial public offering (IPO) in calendar year 2019 stood at Rs 12,362 crore, and in two calendar years — 2018 and 2019 — it aggregated to Rs 46,228 crore.
AIFs refer to any privately pooled investment fund, (whether from Indian or foreign sources), in the form of a trust or a company or a body corporate or a limited liability partnership.
Over 630 AIFs have already been registered with Sebi over the last seven and a half years, with every category and sub-category witnessing large number of registrations. In the last two years when public markets were rather stagnant, cumulative investments by AIFs have actually bucked the trend and more than doubled.
AIFs as financing vehicles have not only attracted the private sector but also seem to have caught the eyes of government. The National Investment Infrastructure Fund (NIIF) — the flagship Centre fund for investing in infrastructure sector — and the Rs 25,000-crore fund announced recently for reviving the realty sector are two of the major central government initiatives which have been set up as AIFs. Various state governments have also formed their own AIFs for encouraging investment in the respective states.
REITs and InvITs, on the other hand, took some time to gain traction and showed progress with the first listing in 2017. Within a span of just two and a half years, over Rs 50,000 crore worth of assets have been acquired by REITs and InvITs in real estate and infrastructure sector, including roads, bridges, power, gas pipeline, etc.
Market sources say that apart from being significant in itself, the growth in these three vehicles must also be seen from the view of their impact on the economy. A significant chunk of investments by AIFs and the entire amount of funds invested through REITs and InvITs relates to sectors such as infrastructure and real estate, which have powerful spillover effects over the rest of the economy. In fact, it came at a time when these sectors are seeing a funding crunch and the public markets do not appear to be very attractive.
“The growth in these vehicles have been primarily due to the proactive steps taken by market regulator Sebi and the government”, said a market expert, adding, “On REITs and InvITs, Sebi has shown flexibility by continuously amending its regulations based on consultations and feedback from the industry while balancing the investor interest.”
The avenues for fundraising by REITs and InvITs have been significantly broadened by Sebi over time, such as through issue of bonds, preferential issue, institutional placement, rights issue.
Similarly, in AIFs as well, it took several enabling measures. Simultaneously, the government has also provided tax benefits and clarity for all these three vehicles over the years, tax pass-through status being a significant measure.
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