Mr Manish Satnaliwala, CEO, Capital Infra Trust (erstwhile National Infrastructure Trust)

24 Oct 2024 , 09:53 AM

Why are InvITs finding so much investor Interest? Could you tell us more about the CIT InvIT and give us an understanding of the roles and responsibilities of the sponsor, the investment manager, project manager and the trustee?

InvIT (Infrastructure Investment Trusts) are a form of AIF structure and akin to mutual funds with focus on Infrastructure Sector only and governed by SEBI InvIT Regulations 2014 as amended from time to time. InvITs are in the nature of yield instrument that attracts investor interest as its backed by cashflow from operating assets.  Currently, there are 25 INVITs registered in the country, which can be classified into two categories: private listed and public listed. Public listed InvIT offers more liquidity and tradability as compared to private InvIT which are restricted to Institutional Investors and body corporate only.

InvITs are categorised as hybrid securities and the units are in form of quasi equity having characteristics of both debt and equity investment, While their returns may not match those of pure equity investments, they generally offer better returns in comparison to traditional debt options, such as debt mutual funds, FD, etc . This makes INVITs an appealing choice for both equity and debt investors seeking a balanced risk profile.

In today’s investment landscape, many investors are looking for options that provide liquidity and better returns compared to conventional products, which is where InvIT fits in perfectly.

InvIT distributes cash to unitholders in the form of: repayments, interest, dividends and capital reduction. Depending on whether the asset/SPV has opted for old tax regime or new tax regime u/s 115BA of Income Tax Act, dividends may be tax-free or taxable as the case may be. In our case, we have certain assets on which old tax regime is applicable and accordingly the dividend to that extent will be tax-free in the hands of Investors.

The structure of INVITs involves several key players which includes sponsors, investment managers, project managers, and trustees. Our sponsor, Gawar Construction Limited, is a prominent player in the industry, having a topline of more than ₹7,000 crore for FY24. Founded by Mr. Rakesh Kumar, a first-generation entrepreneur who began his journey at the age of 18, the company under his leadership and guidance has evolved over 30 years from executing small projects to executing large and complex projects. Gawar primarily is an EPC company focusing on roads and recently diversifying into metro projects. The Sponsor has been appointed as Project Manager of the InvIT.

The investment manager is 100% owned by the sponsor, which is typical for all INVITs, yet operates independently. Investment Manager has to fulfil certain criteria as per InvIT regulations in terms of employee experience, net worth criteria and the board shall have at least 50% independent Director. In addition, if an investor holds more than 10% unit of InvIT, he has an option to appoint a nominee Director. This helps in putting appropriate governance needed for Investment Manager to operate InvIT independently. In our case, we have independent board comprising of seasoned professionals, bringing in valuable expertise related to the infrastructure sector.

Axis Trustee has been appointed as the Trustee of the InvIT.

You are raising Rs 1200 crore from the Fresh Issue of Units , how many more assets Will this money help you bring into the portfolio ? Also what is the ROFO understanding you have with the Sponsor?

We are raising 1200 Cr Fresh Issue to reduce the bank debt to meet the leverage requirement in accordance with the regulations  and repay the Sponsor Unsecured debt. For more details pls read the Draft offer documents (DOD) under Use of Proceeds Chapter.  For further acquisition we will tap the market again.

Our Right of First Offer (ROFO) is set for a duration of 5 years with further renewal of another term of 5 years., ROFO specifically covers the road assets only whether its TOT, BOT Toll or HAM. We aim to provide investors an accretive value through acquisitions.

Currently the Sponsor has additional 17 NHAI HAM Assets which are disclosed in the Draft offer Documents. In case Sponsor builds any further road assets whether BOT Toll or HAM, those will also be covered under the ROFO if it falls within the validity of the ROFO agreement.

This ROFO agreement ensures that investors interest is protected and the asset will be acquired by the InvIT at fair price, which has been established and negotiated between the sponsor and the investment manager along with the of approval of unitholders.

Do you think that InvITs are a better investment than Debt Instruments? If so why and what is the guarantee that you will deliver the committed IRR? How often will the InvIT be declaring dividend to the unitholders?

In a public issue, there is no guaranteed commitment; there is a book building process and price is discovered through it. However, we can offer guidance on expected returns.

I believe that INVITs (Infrastructure Investment Trusts) have strong potential to outperform debt instruments which have liquidity and tradeable. By committing to a long-term investment in an INVIT, investors can expect to see balanced returns, leading to accretive value  over time.

My personal view is that INVITs should be an asset class in every investor’s portfolio. This strategy can enhance your investment profile by providing a natural hedge between equity and debt investment.

Overall, I’ve noticed a growing interest in Infrastructure Investment Trusts (INVITs) among investors. They offer a compelling alternative to traditional debt investments, as they are backed by completed assets that generate stable cash flow. This stability can enhance portfolio diversification and provide a reliable income stream, making INVITs an attractive investment.

It’s also important to note that the law mandates public INVITs to distribute returns at least twice a year. While we have included a provision to potentially offer more frequent distributions, our current plan is to provide returns biannually for our public INVIT.

Could you introduce the professional management team who would be taking care of this InvIT ?

In terms of management team, I have been in the InvIT space since 2018 onwards; I previously launched the Oriental INVIT a Private Listed InvIT in 2019 and also spent two years at Roadstar Infra Trust (ILFS InvIT) from 2021 to 2023. Our team consists of professionals with extensve experience in INVIT management, ensuring we operate efficiently in both lending and operational capacities.

Our CFO, Amit Kumar, has more than 16 years of experience within the banking sector and has handled compliance relating to FEMA and RBI regulations along with project financing pertaining to clients of infrastructure sector, InvITs, PE funds, Auto ancillary among others. His extensive background in lending for various INVITs significantly enhances our team’s expertise.

In addition, we have a strong accounting team having experience of managing InvIT previously. The head of accounting team has previously worked in other InvIT ensuring that we possess a deep understanding of the complexities involved in managing an INVIT. We are in the process of building our team further.

Can the Retail Investor participate in this InvIT? What is the investment amount and why should one consider to park their funds in this instrument?

Yes, Retail Investors can participate in the public offering of InvITs. The minimum investment amount is around ₹15,000, aligning with public offering standards, making this opportunity accessible to many.

I feel investors should consider integrating InvITs into their portfolios. Many individuals tend to be conservative, gravitating towards debt instruments like MF or FD. By reallocating a portion of those funds to InvITs, investors can potentially achieve balanced returns.

The risk associated with our INVITs is significantly lower, as the cashflow is from hybrid annuity projects backed by sovereign entity NHAI.  This provides a reliable income stream, reducing overall investment risk as compared to toll projects

It’s also important to highlight the differences between BOT (Build-Operate-Transfer) toll projects and HAM (Hybrid Annuity Mode) projects. While BOT projects may carry traffic risk, HAM projects benefit from sovereign backing, ensuring a more stable cash flow without any tolling risk.

Is it that you have a preference for Annuity Projects, do you foresee additions of any Toll projects in the future? Will all the ongoing projects / completed projects be transferred to the InvIT?

Currently, the sponsor has NHAI HAM assets only. If the sponsor chooses to diversify into Build-Operate-Transfer (BOT) toll projects in future, those will also be part of ROFO agreement till the agreement is valid. Additionally, our INVIT is open to acquiring third-party assets including HAM, TOT and BOT toll. Our decision to pursue these acquisitions will depend on the accretive value they offer, to the Investors aligning with the investment strategy.

At present the assets being transferred to InvIT are COD/Provisional COD achieved projects which is in accordance with the regulations.