IRB InvIT Fund Review (Apply)

Well, to ease funding for infrastructure sector, SEBI has been mulling a separate instrument for fund raising and meets this sector’s funding demands since June 2015. After mammoth task of opinions, feedbacks etc and the final approval was granted for a novel instrument called InvIT (i.e. Infrastructure Investment Fund) and IRB Infrastructure Developers Ltd (sponsor) is the first organization to bring this novel instrument called” IRB InvIT Fund” in the Indian Market for the first time with a very attractive features. Thus, in short, a new era has begun for infrastructure sector financing. Salient features of IRB InvIT Funds are as under:

Initial offering Units of IRB InvIT Fund (TRUST) is having a price band of Rs. 100-102. Minimum application is to be made for 10000 units (i.e. Rs. 10 lakh plus) and in multiple of 5000 units (Rs 5 lakh plus). Issue opens for subscription on 03.05.17 and will close on 05.05.17. Issue comprises of fresh issue of Rs. 4300 crore and offer for sale of 34761770 units thus making a total size of the issue of Rs. 4655 crore with an option to retain 25% of the offer size oversubscription. Thus it gives enterprise valuation of Rs. 5805 crore to Rs.5921.1 crore (based on lower and upper price band). The Trust has been assigned a rating of CARE AAA(Is) stable by CARE ratings indicating an opinion on the general creditworthiness of the trust and has not rated the Units of the Trust. India Ratings has assigned IND AAA Outlook Stable to Trust’s external senior debt reflecting combined credit quality of the underlying assets and has not rated the Units. Post allotment, Units will be listed on BSE and NSE. Post listing, these units will have a trading lot of 5000 units. InvIT will be registered with SEBI in due course.

BRLMs to this issue are IDFC Bank Ltd, Credit Suisse Securities (India) Pvt Ltd, ICICI Securities Ltd and IIFL Holdings Ltd. Karvy Computershares Pvt Ltd is the registrar to the issue.

Trust has acquired six projects that are already in operation and generating revenues at a CAGR of above 11 per cent. It includes Surat-Dahisar Project (NH8), Bharuch Surat Project (NH8), Talegaon Amravati Project (NH6), Jaipur Deoli Project (NH12), Tumkur Chitradurga Project (NH4) and Omalur-Salem-Namakkal Project (NH7). While Surag-Dahisar and Bharuch-Surat project has concession period tenure till January 2022 and Omalur-Salem-Namakkal till August 2026, other projects have concession tenures ending in June 2037. Sponsor has 22 BOT road projects on hand as on 31st December 2016 out of which 14 are operational, 5 are under construction and 3 are under development. Futures of all these projects are based on the daily traffic volumes, inflation and regulatory changes. Trust will follow factoring of WPI in the pricing of the projects.

Trust will have key investment conditions as under:

1. Invest at least 80% of the value of the assets in completed and revenue generating infrastructure assets
2. Balance 20% can be invested in under-construction infrastructure projects and securities of infrastructure companies in India (cannot invest in units of other InvITs)
3. InvIT should hold (directly or through SPVs) the infrastructure assets for at least 3 years from the date of purchase of the asset by the InvIT (except investment in securities of infrastructure companies)
Investment into SPVs is subject to the InvIT holding a controlling interest (at least 51% of equity share capital) in the SPVs

On dividend policy, investors are likely to get rewards based on

1. At least 90% of distributable cash flow of the SPV shall be distributed to the InvIT in proportion to its holding in the SPV
2. At least 90% of distributable cash flow of the InvIT shall be distributed to the unit holders
3. Dividend declared to be paid within 15 days; distributions to the unit holders to be made on a half yearly basis (however, management has intention to distribute dividends on quarterly basis as informed during road show. Such dividends will be totally tax free in the hands of the Unit holders. )

Trust will have full transparency under following guidelines

1. The Trust will have Right of First Refusal (RoFR) to acquire Sponsor’s existing operational and future assets
2. Also, the Trust can purchase Non-Sponsor assets as per its investment strategy
3. Prior approval of the unit holders will be required at the time of any purchase / divestment of assets

Enterprise value at the offer price of Units will facilitate raising further debt equal to its value at concessional rates.

Conclusion: Although the minimum amount to be invested is Rs. 10 lakh and in multiple of Rs. 5 lakh thereon, investors may invest in this novel instrument for long term investment.