Infrastructure Investment Trusts
InvIT - Background and framework
Infrastructure Investment Trusts (InvITs)
Background
Securities and Exchange Board of India (SEBI) issued draft regulations for InvITs on 17 July 2014 which were kept
open for public comments till 24 July 2014
The final regulations were issued on 26 September 2014
Why InvITs
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Aiding in financing/refinancing of infrastructure
projects
Un-locking tied up capital of developers
Lowering domestic financial institutions’ loan
exposure
Attracting foreign capital
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InvIT Structure
Setup InvIT and appoint the trustee
Sponsor
Trustee
Investment
Manager
Project
Manager
Hold minimum required percentage of total
units of InvIT
Hold InvIT’s assets in the name of InvIT for the
benefit of unit holders
Ensure investment manager makes timely
payment of dividend to unit holders
Make investment decisions in relation to
underlying assets
Ensure assets have proper legal title and
contracts entered are legal, valid and binding
Undertake operations and management of
InvIT assets
For under construction projects, ensure
progress of developments, approval status
and such other aspects
InvITs – Final Regulations
InvITs
Framework
Sponsor
Institutional investors
Not more
than 3
Listing is
mandatory
Trustee
Asset Mgmt
InvIT
Fee
Investment
Manager
to hold
investments
on behalf of
trust
≥ 50%
SPV-1
Assets
Project
manager
≥ 50%
SPV-2
Assets
SPV-2
Assets
PM to be appointed for each infra project
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O&M
contracts
Assets
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Sponsor to set up InvIT; not more than 3
sponsors
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Cumulative projects size ≥ INR 500 cr
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Issue size ≥ INR 250 cr
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InvIT to invest in projects either directly or
through SPVs (at least 50% holding at SPV
level)
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Investment in units of InvITs is allowed by
resident as well as non-resident investors
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Minimum distribution = 90% of distributable
cash flow of InvITs/ SPVs
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Minimum lock-in period for sponsors – 3
years from the date of listing
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Investors to have right to remove the
manager, trustee, request delisting, etc.
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Related party transactions to be on arm’slength basis – related investors not permitted
to vote
InvITs in India – Final Regulations
Permissible assets
Any project in
infrastructure sector.
Please refer Annexure 2
Infrastructure
Projects
PPP
- Received
all requisite
approvals
- Completed
and
revenue
generating
or
- Pre COD
project
Non - PPP
Infrastructure
Sector
Infrastructure is defined by the
Ministry of Finance as per
Notification dated 7 October
2013. Please refer Annexure 1
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- Achieved COD as defined
under the relevant project
agreement
- Received all requisite
approvals
- Generating revenue from
operations for a period of
not less than one year.
Please refer Annexure 2
- Not achieved COD
- Achieved completion of at
least 50% of the construction
as certified by independent
engineer or expended not
less than 50% of the total
capital cost. Please refer
Annexure 2
InvITs in India
Final regulations
Sponsor(s)
qualifications
• Net worth of at least INR 100 crores in case of body corporate or a company or net
intangible assets of INR 100 crores in case of a Limited Liability Partnership (LLP)
• Minimum experience of at least 5 years and has completed at least two projects
Investment
Manager
qualifications
• Net worth of at least INR 10 crores in case of body corporate or a company or net
intangible assets of INR 10 crores in case of a LLP
• Minimum experience of 5 years in fund management/ advisory services/
development in infrastructure sector
• 2 or more key personnel, having more than 5 years’ experience in fund
management/ advisory services/ development in infrastructure sector
• 1 or more employee who has at least 5 years experience in relevant sub-sector in
which InvIT proposes to invest
• Not less than half of its directors / members should be independent and they
should not be directors / members of another InvIT
• An office in India from where operations pertaining to InvIT is proposed to be
conducted
Trustee
qualifications
• Registered with SEBI and is not an associate of sponsor/ investment manager; and
• Sufficient resources with respect to infrastructure, personnel etc. as specified by
the board
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InvITs in India
Final regulations
Borrowings
Related party
transactions
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• Aggregate consolidated borrowings and deferred payments of the InvIT net of cash
and cash equivalents shall never exceed 49% of the value of the InvIT assets
• If aggregate consolidated borrowings and deferred payments of InvIT net of cash
and cash equivalents exceed 25% of the value of InvIT assets, for any further
borrowing following is required to be obtained
• Credit rating from a credit rating agency registered with SEBI
• Approval of unit holders
• Should be on an arms-length basis
• In case of publicly traded InvIT with respect to related party transactions entered
into after initial offer, approval from unit holders is required if • Total value of such transactions relating to sale/purchase of assets or
investments into securities exceed 5% of value of InvIT
• Value of funds borrowed from related parties exceed 5% of total consolidated
borrowings
• Stringent conditions have been imposed including detailed disclosures, valuation
requirements, approval from majority of investors etc.
Different categories of InvITs
Comparison
Parameter
Raising of funds
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Minimum
investment by
an Investor
Investment
restrictions –
asset type
Investment
conditions
Privately Placed InvITs
Public InvITs
Investment >10% in Projects under
construction
Investment >80% in Revenue Generating Projects
Listing is mandatory
Funds to be raised by private placement
from institutional investors and body
corporates
No lock-in restrictions for investments by
NRs
Foreign Investment shall be subject to
guidelines specified by RBI
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Listing conditions:
► Minimum public float - 25% of total outstanding
units of InvIT and units being offered by way of
offer document
INR 1cr
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Cumulative project size ≥ INR 500 cr
Initial Offer size ≥ INR 250 cr
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Can invest in under construction projects
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No investment conditions prescribed
INR 10 lakhs
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To invest maximum of 10% in under construction
eligible infrastructure projects
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80% or more should be in completed and revenue
generating projects
Balance 20% or less can be invested in other
specified investments
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Listing is mandatory
No lock-in restrictions for investments by NRs
Foreign Investment shall be subject to guidelines
specified by RBI
Different categories of InvITs
Comparison
Parameter
Privately Placed InvITs
Public InvITs
Investment >10% in Projects under
construction
Investment >80% in Revenue Generating Projects
Leverage limits
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Price of units
of InvIT
Through book building or any other process in accordance with the guidelines issued by the Board
Number Of
investors
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Maximum borrowings and deferred payments net of cash and cash equivalents - less than 49% of
the value of the InvIT assets
Minimum - 5 Investors
Maximum - 1000 Investors
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Minimum - 20 Investors
Maximum - No Limit
Holding of each investor shall not be more than 25% of the units of the InvIT
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InvITs – Comparative Analysis
InvITs in India
Comparative analysis of regulations
Particulars
Sponsor(s)
qualifications
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Draft regulations
Final regulations
Comments
No restriction on number of
sponsors
Number of sponsors restricted to 3
Capped on number of
sponsors
Net worth of at least INR 10 crores
in case of body corporate or a
company or net intangible assets of
INR 10 crores in case of a Limited
Liability Partnership (LLP)
Net worth of at least INR 100 crores
in case of body corporate or a
company or net intangible assets of
INR 100 crores in case of a Limited
Liability Partnership (LLP)
Increased the minimum
net worth requirement
of Sponsors to
encourage considerate
competition
No clarity for InvITs proposing to
invest in PPP projects, where the
regulatory requirement/concession
agreement requires sponsor to hold
a certain minimum percent in SPV
In case of PPP projects, other than
regulatory requirement to hold
certain minimum percent in SPV by
sponsor –
• Consolidated value of sponsor
holding shall be at least 25% of the
value of units of InvIT or unit
holders for not less than three
years
• Where sponsor does not have a
controlling interest in SPV and
more than 50% of shareholding in
the SPV, the sponsor shall enter
into a bidding agreement so that
the decisions are in compliance
with the regulations and not
against the interest of InvIT or
unit holders
Sponsor’s holding in
InvIT is not mandatory,
if InvIT is proposing to
invest in PPP projects,
where the regulatory
requirement requires
sponsor to hold a
certain minimum
percent in SPV
InvITs in India
Comparative analysis of regulations
Particulars
Sponsor(s)
qualifications
Investment
Manager
qualifications
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Draft regulations
Final regulations
Comments
Minimum experience of 5 years in
development of infrastructure or
fund managements in
infrastructure sector
Minimum experience of 5 years in
development of infrastructure and
has developed at least 2 projects
No change
Incase of PPP projects, sponsor
shall mean the lead member of the
concessionaire SPV
Incase of PPP projects, sponsor
shall mean the infrastructure
developer or SPV holding
concession agreement
Now, Sponsor need not
necessarily lead member
Net worth of at least INR 5 crores
in case of body corporate or a
company or net intangible assets of
INR 5 crores in case of a LLP
Net worth of at least INR 10 crores
in case of body corporate or a
company or net intangible assets of
INR 10 crores in case of a LLP
Increased the minimum
net worth requirement
to encourage
considerate competition
Minimum experience of 5 years in
fund management/ advisory
services/ development in
infrastructure sector
Minimum experience of 5 years in
fund management/ advisory
services/ development in
infrastructure sector
No change
2 or more key personnel, having
more than 5 years’ experience in
fund management/ advisory
services/ development in
infrastructure sector
2 or more key personnel, having
more than 5 years’ experience in
fund management/ advisory
services/ development in
infrastructure sector
No change
InvITs in India
Comparative analysis of regulations
Particulars
Trustee
qualifications
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Draft regulations
Final regulations
Comments
Registered with SEBI and is not an
associate of sponsor/ investment
manager; or
Registered with SEBI and is not an
associate of sponsor/ investment
manager; and
Associate can not be
Trustee
If it is an associate of sponsor/
Investment manager, it should have
50% of its directors as independent
Sufficient resources with respect
to infrastructure, personnel etc. as
specified by the board
Sufficient resources to
perform duties
It is not a trustee of another InvIT
or an Alternative Investment Fund
engaged in infrastructure sector
This has been removed
InvITs – Major changes in regulations
InvITs in India
Major Changes
Particulars
Draft regulations
Completed and
Revenue
Generated
Projects
The assets of the Infrastructure
Project had to be capitalised in the
books of account of the SPV of the
InvIT
This have been removed
No capitalization
requirements
Eligible
Infrastructure
Project
A Non-PPP project is an
Infrastructure Project that has
received all the requisite
approvals and certifications for
commencing construction of the
project and has been rated by a
credit rating agency
Now, A Non-PPP project will
qualify as Infrastructure
project, if all the requisite
approvals have been received
No credit rating is
required to qualify as
eligible infrastructure
project
Infrastructure
It includes all infrastructure subsectors as defined by Cabinet
Committee on Infrastructure vide
Notification of Ministry of Finance
dated March 1, 2012 and any
amendments/additions made
thereof
It includes all infrastructure
sub-sectors as defined vide
Notification of Ministry of
Finance dated 7 October,
2013 and any
amendments/additions made
thereof
Now, hotels without
specified category and
convention centre to be
included in the definition
of infrastructure subject
to minimum project cost.
Please refer Annexure 1
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Final regulations
Comments
InvITs in India
Major Changes
Particulars
Draft regulations
Final regulations
Comments
Public listed
InvIT
Minimum subscription from any
investor in initial and follow-on
offer shall be INR five lakhs
Minimum subscription from any
investor in initial and follow-on
offer shall be INR ten lakhs
Considering the InvIT is a
new financial instrument,
retail investor with sound
financial background
should invest
Infrastructure
Project
Any project in infrastructure
sector excluding any project
which has either or both of the
following attributes –
• Revenues from the project are
treated as rental or leasehold
income
• Immovable assets related to
the project are treated as
investments and not as fixed
assets
Any project in infrastructure
sector. Please refer Annexure
1
Definition modified to
include those
infrastructure assets
where revenue is earned
from leasing/letting out
Incase of hotels or hospitals –
• Leasing of land on which such
hospital or hotel is located shall
not be an infrastructure project
• Revenues generated from
operation and management of a
hospital or hotel shall be an
infrastructure project
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InvITs in India
Major Changes
Particulars
Draft regulations
Final regulations
Comments
Privately
offered InvIT
Required to mandatorily hold –
• At least one post COD project
• At least one pre COD project
This requirement has been
removed
No requirement of
necessary bundling of
assets
Investment by
publicly offered
InvIT
Mandatory investment in minimum
of two asset
This requirement has been
removed
Considering the size of
investment in
infrastructure sector,
one project may be
enough for investment
SPV/InvIT to distribute 90% of the
net distributable income after tax
SPV/InvIT to distribute 90% of the
net distributable cash flow
Higher distribution to
investor
Incase of publicly offered InvIT,
distributions shall be made every
Quarter
Incase of publicly offered InvIT,
distributions shall be made every
six months
Distribution to be done
half yearly
Incase of privately placed InvIT,
distribution shall be made every six
months
Incase of privately placed InvIT,
distribution shall be made once a
year
Distribution to be done
yearly
The aggregate consolidated
borrowings and deferred payments
shall not exceed 49% of the value
of the InvIT assets
The aggregate consolidated
borrowings and deferred payments
net of cash and cash equivalents
shall not exceed 49% of the value
of the InvIT assets
Clarity on how the
consolidated
borrowings should be
calculated
Distributions
made by InvIT
Borrowings and
deferred
payments
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InvITs in India
Major Changes
Particulars
Draft regulations
Final regulations
Sale or
purchase of
infrastructure
projects
In case of publicly offered InvITs,
for purchase or sale of
infrastructure projects, whether
directly or through SPVs• Full valuation of the project
shall be undertaken by the
valuer
• In case of a purchase, the asset
shall not be purchased at a
value greater than 110% of the
value of the asset as assessed
by the valuer;
• In case of a sale, the asset shall
not be sold at a value less than
90% of the value of the asset as
assessed by the valuer
In case of publicly offered InvITs,
for purchase or sale of
infrastructure projects, whether
directly or through SPVs, full
valuation of the project shall be
undertaken by the valuer, if
• In case of a purchase, the asset
is proposed to be purchased at
a value greater than 110% of
the value of the asset as
assessed by the valuer
• In case of a sale, the asset is
proposed to be sold at a value
less than 90% of the value of
the asset as assessed by the
valuer
Subject to the approval of the unit
holders
This will allow for a
transaction of buying
and selling of a non
related party asset at
a price outside the
limits as specified by
the draft regulations
Sale of units to
public
No regulations proposed
Units may be sold to public if such
units have been held by sellers for
a period of at least one year prior
to the filling of draft offer
document including the period of
holding of equity shares /
partnership interest in SPV
Clarity on minimum
holding period prior to
sale of unit
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Comments
InvITs – Tax Provisions
Tax provisions announced in Budget 2014
Specific tax regime proposed for listed InvIT – to be effective from 1 October 2014
Sponsor
Capital gains at the time of exchange of shares in SPV with units of business trust to be deferred. Such capital gains proposed
to be taxable only at the time of disposal of units by sponsor
* Period of holding of such units - period of holding of shares of SPV to be included
* Cost of acquisition of such units – cost of shares in specified SPV
Future sale of units by sponsor – Capital gains tax as well as STT (if sold on exchange) to levied [section 111A/10(38)]
No tax concession proposed at SPV level
SPV
Distribution of dividend to trust - subject to DDT
Interest paid to trust – allowed as deduction. No taxes to be withheld
InvIT
Income of trust
Dividend and interest received by trust from SPV – Exempt
Capital gains on disposal of assets - taxable in the hands of InvIT (effective tax rate of 20% for long term capital gains with
indexation benefit and maximum marginal rate for short term capital gains)
Any other income – taxable at maximum marginal rate
Interest component of income distributed by trust to the unit holders would attract withholding tax @ 5%/ 10% for non-resident
and resident unit holders respectively. Tax may be deducted at higher rate of 20% in absence of PAN. Dividend & capital gains
component of income distributed by InvITs to the unit holders will be exempt in the hands of the unit holders
InvITs to file return of income
Interest income received by non-resident unit holders taxable at 5% concessional rate & at applicable rates for resident holders
Unitholder
Capital gains on sale of listed units of InvIT on the exchange to attract levy of security transaction tax at par with that of listed
equity shares. Long term capital gains (where units held for more than 36 months) would be exempt and short term capital
gains would be taxable @ 15%. Where sale of units is off the exchange LTCG taxable at 20% and STCG @ applicable rates
MAT applicable on interest income and capital gains on sale of InvIT units
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Thank you
Annexure - 1
Final Regulations - List of infrastructure sub sectors
Infrastructure (as per notification dated 7 October 2013 of Ministry of finance)
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Transport
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Energy
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Water sanitation
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Roads and bridges
Ports1
Inland waterways
Airport
Railway track, tunnels, viaducts, bridges2
Urban public transport (except rolling stock in case of urban road transport)
Electricity generation
Electricity transmission
Electricity distribution
Oil pipelines
Oil/Gas/liquefied natural gas (LNG) storage facility3
Gas pipelines4
Solid waste management
Water supply pipelines
Water treatment plants
Sewage collection, treatment and disposal system
Irrigation (dams, channels, embankments etc.)
Storm water drainage system
Slurry pipelines
1
Includes capital dredging
2
Includes support terminal
3
Includes strategic storage of crude oil
4
Includes city gas distribution network
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Annexure - 1
Final Regulations - List of infrastructure sub sectors
Infrastructure (as per notification dated 7 October 2013 of Ministry of finance)
Communication
Social and
commercial
infrastructure
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Telecommunication (fixed network)5
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Telecommunication towers
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Telecommunication & Telecom services
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Education institutions (capital stock)
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Hospitals (capital stock)6
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Three-star or higher category classified hotels located outside cities with population of more than one
million
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Common infrastructure for industrial parks, SEZ, tourism facilities and agriculture markets
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Fertilizer (Capital investment)
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Post harvest storage infrastructure for agriculture and horticultural produce including cold storage
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Terminal markets
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Soil-testing laboratories
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Cold chain7
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Hotels with project cost8 of more than Rs 200 crores each in any place in India and of any star rating
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Convention centers with project cost8 of more than Rs 300 crores each
5
Includes optic fiber/cable networks which provide broadband/internet
6
Includes medical colleges, para medical training institutes and diagnostics centers
Includes cold room facility for farm level pre-cooling, for preservation or storage of agriculture and allied produce, marine products and
meat
Applicable with propective effect from the date of notification and available for eligible prospects for three years from the date of
notification; eligible cost exclude cost of land and lease charges but include interest during construction
7
8
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Annexure - 2
Definitions
Associate
► Any person who controls, directly or indirectly
► In case of a company or a body corporate, any person who is designated as promoter of the
company/body corporate and any other company/body corporate with the same promoter
► In case of an individual, any relative of the individual
► In case of a company or a body corporate or an LLP, its group companies
► Companies/LLPs under the same management
► In case of an InvIT, related parties to the InvIT
► Any company or LLP or body corporate in which the person or its director/partner hold, either
individually or collectively, more than fifteen percent of its paid-up equity share capital or
partnership interest, as the case may be
Eligible
infrastructure
project
An Infrastructure Project which prior to the date of its acquisition by or transfer to the InvIT,
satisfies the following conditions:
► For PPP projects:
► The Infrastructure Project is completed and revenue generating; or
► The Infrastructure Project is a pre-COD project
► In Non-PPP projects
► The Infrastructure Project has received all the requisite approvals and certifications for
commencing construction of the project
Infrastructure
All infrastructure sub-sectors as defined by vide Notification of Ministry of Finance dated October 7,
2013 and shall include any amendments/additions made thereof
Infrastructure
project
Any project in infrastructure sector
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Annexure - 2
Definitions
Special
Purpose
Vehicle
Any company or LLP:
► in which the InvIT holds or proposes to hold controlling interest and not less than 50% of the
equity share capital or interest; and
► which holds not less than 90% of its assets directly in infrastructure projects and does not invest in
other Special Purpose Vehicles; and
► which is not be engaged in any other activity other than activities pertaining to and incidental to
the underlying infrastructure projects
Completed
and
revenue
generating
project
An Infrastructure Project which prior to the date of its acquisition by or transfer to the InvIT, satisfies
the following conditions:
► the Infrastructure Project has achieved the commercial operation date as defined under the
relevant project agreement including the concession agreement, power purchase agreement or
any other agreement of a similar nature entered into in relation to the operation of a project or any
agreement entered into with the lenders;
► the Infrastructure Project has received all requisite approvals and certifications for commencing
operations; and
► the Infrastructure Project has been generating revenue from operations for a period of not less
than one year
Sponsor
Company or LLP or body corporate who sets up the InvIT and assigned as such at the time of
application made to the Board and in case of PPP projects, shall mean the infrastructure developer or a
special purpose vehicle holding concession agreement
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Annexure - 2
Definitions
Pre-COD
project
An infrastructure project which :
► has not achieved commercial operation date as defined under the relevant project agreements
including the concession agreement, power purchase agreement or any other agreement of a
similar nature entered into in relation to the operation of a project or any agreement entered
into with the lenders; and
► has:
► achieved completion of at least 50% of the construction of the infrastructure project as
certified by an independent engineer of such that project; or
► expended not less than 50% of the total capital cost set forth in the financial package of the
relevant project agreement
Under
construction
project
Infrastructure project, whether PPP or non-PPP, which has not achieved commercial operation date
as defined under the relevant project agreements including the concession agreement, power
purchase agreement or any other agreement of a similar nature entered into in relation to the
operation of a project or any agreement entered into with the lenders
Net Worth
Net worth‖ in relation to a company or a body corporate shall have the meaning assigned to it in or
under sub-section (57) of section 2 of the Companies Act, 2013
As per sub-section (57) of section 2 of the Companies Act, 2013, net worth means –
“The aggregate value of the paid-up share capital and all reserves created out of the profits and
securities premium account, after deducting the aggregate value of the accumulated losses,
deferred expenditure and miscellaneous expenditure not written off, as per the audited balance
sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation
and Amalgamation”
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