Related Topic in KAS Prelims Syllabus:
Economy [Paper-II]: Infrastructure in Indian Economy
Why in News?
Union Cabinet has given its approval to the proposal of Ministry of Road Transport and Highways, authorizing National Highways Authority of India (NHAI) to set up Infrastructure Investment Trust(s) (InvIT) as per InvIT Guidelines issued by SEBI.
News in Detail
- This will enable NHAI to monetize completed National Highways that have a toll collection track record of atleast one year and NHAI reserves the right to levy toll on the identified highway.
- Under InvIT, highway projects will be bundled to form a special purpose vehicle (SPV) to be offered to investors.
- The SPV would then be traded on the stock exchanges, and returns will be linked to the InvIT’s performance in the capital market.
- InvIT as an instrument provides greater flexibility to investors and is expected to create specialized Operation & Maintenance concessionaires, attract patient capital for around 30 years to the highways market.
- NHAI’s InvIT will be a Trust established by NHAI under the Indian Trust Act, 1882 and Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014.
What is Infrastructure Investment Trusts (InvITs)?
- SEBI notified the SEBI (Infrastructure Investment Trusts) Regulations, 2014 on September 26, 2014, providing for registration and regulation of InvITs in India.
- The objective of InvITs is to facilitate investment in the infrastructure sector.
- It is a Collective Investment Scheme similar to a mutual fund, which enables direct investment of money from individual and institutional investors in infrastructure projects to earn a small portion of the income as return.
- Such a model is more attractive for investors as it provides greater flexibility and they don’t have to build an infrastructure project from scratch and is averse to construction risk.
- It is designed as a tiered structure with Sponsor setting up the InvIT which in turn invests into the eligible infrastructure projects either directly or via special purpose vehicles (SPVs).
Structure of InvITs
- An InvIT consists of four elements: 1) Trustee, 2) Sponsor, 3) Investment Manager and 4) Project Manager.
- ‘Sponsors’ means promoters and refer to any organisation or a corporate entity with a capital of Rs 100 crore, which establishes the InvIT.
- The infrastructure company interested in getting funds from the public will form the trust, and then appoint an investment manager who will be responsible for how the assets and investments of the InvIT are managed.
- Project manager executes the projects. It is overseen by the investment manager.
- Since the instrument is essentially a trust, the company will also appoint a trustee, who has to ensure that the functions of the InvIT, investment manager and project manager comply with SEBI rules.
[Source: Economic Times, PIB]