How NHAI plans to monetise its highways through InvITs

Infrastructure Investment Trusts (InvITs)

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Infrastructure Investment Trusts (InvITs)

In News:

  • The National Highways Authority of India (NHAI) is preparing to launch its Infrastructure Investment Trust (InvIT) issue.
  • In December 2019, the Union Cabinet had already approved the setting up of the InvIT by the National Highways Authority of India (NHAI).
  • The InvIT issue will enable NHAI to monetize (earn money from) its completed National Highways that have a toll collection track record of at least one year.

About: Infrastructure Investment Trusts (InvITs)

  • Infrastructure investment trusts are institutions similar to mutual funds. Its objective is to facilitate investment into the infrastructure sector in India.
  • InvITs collect investment from various categories of investors and invest them into completed and revenue-generating infrastructure projects.
  • It thus enables investment of money from individual and institutional investors in infrastructure projects to earn a small portion of the income as return.
  • InvITs are regulated by Securities and Exchange Board of India (SEBI). SEBI had notified the SEBI (Infrastructure Investment Trusts) Regulations, 2014 for registration and regulation of InvITs in India.
  • Structure of InvITs:
  • There are four important parties to an InvIT — sponsors, investment managers, project managers and the trustee.
  • Sponsors are promoters of the company that set up the InvIT. In case of Public–private partnership (PPP) projects, it refers to the infrastructure developer or a special purpose vehicle (SPV) developing the project.
  • The investment manager is given the task of supervising the assets and investments of the InvIT and the project manager is responsible for the execution of the project.
  • The trustee (certified by Sebi) has the responsibility to ensure that the functions of the InvIT, investment manager and project manager comply with Sebi rules.
  • NHAI’s InvIT will be a Trust established by NHAI under the Indian Trust Act, 1882 and SEBI regulations.

About: Special Purpose Vehicle (SPV)

  • Special purpose vehicle is an entity which is formed for a single, well-defined purpose and can be formed for any lawful purpose.
  • It is, primarily, a business association of persons or entities eligible to participate in the association. Technically, an SPV is a company and has to follow the rules of formation of a company laid down in the Companies Act.

India’s InvIT market:

  • The Indian InvIT market is not yet mature and has supported formation of 10 InvITs till date — in roads, power transmission, gas transmission and telecom towers sectors. 
  • From the 10 InvITs, only two InvITs are listed on the stock exchange. The InvITs listed on the stock exchange are IRB InvIT Fund and India Grid Trust.
Reasons for the launch of NHAI’s InvIT:
  • In 2017, the Centre had launched Bharatmala Pariyojana, its flagship highway development programme, for development of 24,800 km of roads at a total investment of Rs 5,35,000 crore.
  • In order to complete the projects, NHAI needs adequate funds and one of the options is to monetise the completed and operational National Highway assets.
  • NHAI’s InvIT offer, is a way for the government to attract alternative sources of financing to boost public spending in the roads and infrastructure sector.
  • At a time when private sector investment in the economy has declined, fund-raising by NHAI and spending on infrastructure will not only give a boost to the economy, but will also attract private sector investment.
Benefits of InvITs for investors:
  • A retail investor or even large financial investors may not be able to invest in infrastructure projects such as roads, power, energy etc. InvITs enable these investors to buy a small portion of the units being sold by the fund.
  • Since such trusts mostly include completed and operational projects with positive cash flow, the risks of investments are low.
  • Unit holders also benefit from favourable tax norms, including exemption on dividend income and no capital gains tax if units are held for more than three years.

About: Capital Gains Tax

  • capital gains tax (CGT) is a tax on the profit from the sale of an asset. The most common capital gains are realized from the sale of stocks, bonds, precious metals, real estate, and property.

About: National Highways Authority of India

  • National Highways Authority of India (NHAI) was constituted by the National Highways Authority of India Act, 1988 under the Ministry of Road Transport and Highways NHAI.
  • It became operational in 1995 and was formally made an autonomous body.
  • It has been set up as a Central Authority to develop, maintain and manage the National Highways for which the responsibility is given to it by the Union Government.
  • The NHAI is also responsible for the toll collection on several highways.

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