Infrastructure Investment Trust (InvIT)

An Infrastructure Investment Trust (InvIT) is an Investment Scheme similar to a mutual fund, which authorizes the direct investment of money from several individuals and institutional investors in infrastructure projects to earn a small portion of the income as a return. The InvITs are regulated by the SEBI Infrastructure Investment Trusts Regulations, 2014. InvIT can invest in infrastructure projects, either directly or through a special purpose vehicle (SPV). In the case of Public-Private Partnership (PPP) projects, the investments should be made through SPV. In this article; we will look at the Infrastructure Investment Trusts (InvIT) in detail.

Advantages of InvIT

The benefit of InvIT is explained in detail below:

InvITs is proposed to provide a suitable structure for financing or refinancing of infrastructure projects in the country.
InvIT is providing wider and long-term re-finance for existing infrastructure projects
InvIT is freeing up of the current developer’s capital for reinvestment into new infrastructure projects.
Refinancing the existing high-cost debt with long-term low-cost capital and help banks to reduce loan exposure
InvIT is attracting international finance into the Indian infrastructure sector.
InvITs will enable investors to hold a diversified portfolio of infrastructure assets.
InvITs are also proposed to bring higher standards of governance into infrastructure development and management and distribution of income from assets to attract investor interest.

Types of InvITs

The Infrastructure Investment Trusts (InvITs) is set up as a trust and registered with SEBI. The InvITs is classified into two types as follows:

One type of InviTs is allowed the investor to invest mainly in completed and revenue-generating infrastructure projects
Another type of InviTs has the flexibility to invest in completed or under-construction infrastructure projects.

The InvIT is designed as a tiered structure with Sponsor setting up the InvIT which in turn invests into the infrastructure projects either directly or via special purpose vehicles (SPVs).

Structure of InvIT

An InvIT has four parties such as Trustee, Sponsor, Investment Manager and Project Manager.

Trustee

A trustee is a person who holds the InvIT assets in trust for the benefit of the unitholders.

Sponsor

Sponsor means any company or Limited Liability Partnership firm or body corporate with a net worth of Rs. 100 crore which sets up the InvIT and is designated at the time of application made to the Board
In the case of Public-Private Partnership projects, it refers to the infrastructure developer or a special purpose vehicle holding concession agreement.

Promoters or Sponsors

Promoters or Sponsors have to hold at least 25% in the InvITs for at least 3 years, except for the cases where a regulatory requirement/ concession agreement requires the sponsor to hold a certain minimum per cent in the underlying SPV.
In such cases, the consolidated value of sponsor holding in the underlying SPV and the InvITs cannot be less than 25% of the value of units of InvITs on a post-issue basis.

Investment Manager

Investment Manager is referred to a company or Limited Liability Partnership (LLP) or body corporate which manages assets and investments of the InvIT and guarantees activities of the InvIT.

Project Manager

Project manager refers to the person designated as the project manager by the InvIT, the project manager is responsible for achieving execution of the project and in case of PPP projects, it indicates that the entity responsible for such execution and achievement of project milestones following the concession agreement or any other relevant project document.

Eligibility to Invest

The minimum investment amount is Rs.10 lakh. InvITs are listed on exchanges just like stocks. After listing, the investment amount is Rs.5 lakh. The following persons can invest in InvIT:

High net worth individuals
Institutional and non-institutional investors like foreign portfolio investors, pension funds, mutual funds, banks and insurance firms.

Benefit to Investors

There are certain rules that the InvIT issuers have to follow designed to safeguard the investor.

The sponsor has to hold a minimum of 15 % of the InvIT units with a lock-in period of three years.
InvIT has to distribute 90 % of its net cash flows to investors.

The trust is required to invest a minimum of 80 % in revenue-generating infra assets. Only the rest amount can be used for under-construction assets. Dividends from the InvIT trust will be distributed to the investor depending on its cash flow and there is no dividend distribution tax on InvIT units. Tax Benefit Government is providing an exemption from dividend distribution tax and relaxation of capital gains tax for InvIT.

The dividend income that is distributed by the trusts is exempted from tax.
The central government has exempted long-term capital gain tax in InvIT if the security is held for over 3 years. Capital gain tax is applicable only if the investors pay securities transaction tax (STT).
If an investor exits an InvIT before three years, a Short-term capital gain tax 15% is applicable.

Eligibility Criteria to Get Registration Certificate

To get the registration certificate, the following conditions should be full fill by the applicant. The SEBI will consider all matters relevant to the activities as an InvIT.

Regarding sponsor

The sponsor and the instrument of trust should be registered in India under the provisions of the Registration Act, 1908.
The sponsor (Corporate or Company) should have a net worth of Rs.100 crore for registering Infrastructure project as InvIT.
In case a sponsor is a limited liability partnership firms the net tangible assets should be Rs.10 core to get the certificate.
For getting a certificate of registration, the sponsor or its associate should have a soundtrack record in the development of infrastructure or fund management in the infrastructure sector.

Regarding Investment Manager

The Investment Manager (Corporate or Company) should have a net worth of Rs.10 crore for registering Infrastructure project as InvIT.
In case an Investment Manager is a limited liability partnership firms the net tangible assets should be Rs.100 core to get the certificate.
The investment manager should have five years of experience in fund management or advisory services development in the infrastructure sector
The investment manager should have more than two employees who have at least five years experience each, in fund management or advisory services or development in the infrastructure sector
The investment manager should have at least one employee who has at least five years experience in the relevant sub-sectors in which the InvIT has invested or proposes to invest
the investment manager should have an office in India from where the operations of the InvIT is proposed to be conducted
The investment manager should be entered into an investment management agreement with the trustee

Regarding Trustee

The trustee should be registered with the Board under Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993

Fee Details

The fee details for registering Infrastructure Investment Trusts (InvITs) are explained in detail below: Registration and filing fees have to paid by the applicant or InvIT by a demand draft in favour of 'Securities and Exchange Board of India' payable at Mumbai or respective regional or local office.

Application Fee

The applicant needs to pay non-refundable application fees of Rs.1 lakh along with the application to obtain a certificate of registration.

Registration Fee

The applicant has to pay a non-refundable registration fees a sum of Rs.10 lakh within fifteen days from the date of receipt of intimation from the SEBI Board.

Filing Fee

The publicly offered Infrastructure Investment Trust (InvIT) needs to pay the non-refundable filing fee as given below:

0.1% in the case of initial and follow-on offer
0.05% in case of the rights issue

Note:

If the issue size estimated by the InvIT differs from eventual issue size the fees paid by the InvIT is found to be deficient, the balance fee will be paid by the issuer with the recognized stock exchanges
If any excess fee is found to have been paid, it will be refunded by the Board to the InvIT.

The privately placed Infrastructure Investment Trust (InvIT) need to pay non-refundable filing fees of 0.1% of the total issue size including greenshoe option at the time of filing of draft placement memorandum with the Board.

Documents Required

The documents required for registering Infrastructure Investment Trusts are listed as follows:

Trust Deed
Identity and Address proof of the trustee
Identity proof and address proof of the Sponsor
Financial statements for the previous financial year
Net-worth certificate of the sponsor by a Chartered Accountant, not more than six months old from the date of application
Investment Management agreement
Identity proof and address proof of the Investment Manager, its directors or partners
Brief details of the assets proposed to be held under InvIT

Application Procedure for Registration of Infrastructure Investment Trusts

According to the SEBI Regulation, 2014, the person has to obtain a certificate of registration from the Board to acts as InvIT. The procedure to register infrastructure Investment Trusts is explained in detail below:

To register a trust as InvIT, an application form in prescribed format has to be submitted by sponsor on behalf of the trust. The application form is enclosed here:

The applicant has clearly described at the time of registration, details about proposed activities of the InvIT.
The Board on being satisfied that the applicant fulfils, the requirements will send intimation to the applicant and grant the certificate of registration.

Note: The Board may require the applicant or its authorized representative to appear before the Board for personal representation.