Infrastructure Investment Trusts (InvIT) will likely be a key financing mechanism as the federal government kick-starts its bold plan to monetise brownfield property, with a Rs 5,000 crore National Highways Authority of India (NHAI) InvIT subject anticipated to set the ball rolling.
InvITs for railways and energy sector property are being deliberate as nicely — at the same time as a Public Private Partnership (PPP)-based template has additionally been ready to monetise property throughout sectors together with ports, airports, transport, telecom, warehousing, mining, and gasoline & petroleum product pipelines.
“The first tranche of NHAI InvIT transaction is expected to be completed by Q2/Q3 of FY2022 subject to market conditions and stabilisation of toll revenues in wake of Covid,” says the NITI Aayog’s National Monetisation Pipeline (NMP) FY’22-25. “(This) issue is envisaged to be privately placed, with indicative value fund raise at about Rs 5,000 crore.”
The first tranche of the NHAI InvIT is predicted to incorporate 586 km of street property in Rajasthan, Gujarat, West Bengal, and Bihar, and is more likely to be wrapped up by December. NHAI can be exploring a second tranche of follow-on subject of the InvIT.
“We have got good feedback from institutional investors. The InvIT route, as already tried in the PowerGrid issue, should get the monetisation plan off the ground immediately,” a senior authorities official mentioned.
While InvITs and Real Estate Investment Trusts (REITs) are structured financing autos, different monetisation fashions on PPP foundation embody Toll Operate Transfer (TOT), Operate Maintain Transfer (OMT), Operations, Maintenance & Development (OMD), and Carry Operate Transfer (COT).
The Investment Trusts are considerably like mutual funds, which allow small traders to purchase items within the trusts which are listed on the exchanges, and to have a share within the earnings stream of those autos within the type of dividend and unit distribution. The different monetisation approaches are principally consumer fee-based.
After the profitable PowerGrid InvIT subject comprising transmission property earlier this yr, the federal government has now lined up follow-on points. The transmission property thought of for monetisation over FY 2022-25 are 28,608 circuit kilometre (ckt km), comprising about 17 per cent of PowerGrid Corporation’s whole asset base. In 2021-22, transmission property price Rs 7,700 crore are anticipated to be monetised, together with the transaction already accomplished in April-June.
The tasks comprise 11 transmission traces, together with six 765 kV traces and 5 400 kV traces, with a complete circuit size of three,700 ckt km, and three sub-stations with 6,630 MVA of mixture transformation capability and 1,956 km of optical floor wire.
“There is high visibility of potential revenue and cash flows from the InvIT due to availability of additional 18 projects involving an investment of Rs 22,500 crore to be offered as a project pipeline to the InvIT,” as per the NMP.
“The (NMP) is likely to be positive for the chosen sectors if it is orchestrated well, with seamless regulatory support and the right ecosystem to meaningfully monetise the assets…The idea to increase efficiencies of brownfield assets, with a hand back caveat, brings some comfort. Asset monetisation in power can bring further investment in infra building,” mentioned N Venu, MD and CEO, India and South Asia, Hitachi ABB Power Grids.
In the railway sector, station growth, passenger practice operations, items sheds and hill railways are being monetised on PPP foundation, whereas the federal government is eager to launch a Track Signalling and Overhead Equipment (Track OHE) InvIT. The plan is to monetise present railway infrastructure throughout outlined routes as a packaged asset.
Among different railway property, 265 items sheds out of the entire 1,246 have been thought of for monetisation over the NMP interval, beginning with 75 items sheds in FY23. The authorities plans to ask non-public sector participation in augmentation and operations & administration of those sheds as non-public freight terminals.
The Dedicated Freight Corridor Corporation of India plans to monetise 673 km of tracks both by grant of TOT-like concessions to non-public gamers, or by InvIT transaction with income within the type of Track Access Charge. As sure sections of the Western and Eastern devoted freight corridors have already commenced, monetisation can start in phases after extra tracks are commissioned.
The authorities has used 4 key strategies — market method, Capex method, e-book worth method and enterprise worth method — to reach on the indicative worth of Rs 6 lakh crore price of property to be monetised.
Multiple sectors and sub-segments recognized within the NMP present traders with a variety of choices, however “execution” will likely be key for such a daring reform transfer, mentioned Manish Aggarwal, Partner & Head – Infrastructure, KPMG in India.
“Structuring of projects and ensuring a balanced risk framework is very important before these deals are launched in the market. We must avoid what happened in the recently launched PPP in trains initiative, where no bids (except two, one of which was by a government entity) came up,” he mentioned.