NHAI on track to achieve Rs 30,000 crore asset monetisation target

• NHAI is set to achieve the government of India’s budgeted asset monetisation target of Rs 30,000 crore for current FY 2025-26.

• National Highways Authority of India (NHAI) has already realised Rs 28,307 crore through a combination of Public InvIT, Private InvIT, and Toll-Operate-Transfer (TOT) model, including TOT Bundles 17 and 18. 

• Bids received for TOT Bundle-19 are under technical evaluation.

Asset monetisation

• Asset monetisation, also commonly referred to as asset or capital recycling, is a widely used business practice globally. 

• It entails a limited period license/lease of a public sector asset to a private sector entity for an upfront or periodic consideration through a well-defined concession/contractual framework.

• Hence, it is a virtuous cycle where existing assets are converted into source of funds, which are then invested in creating new assets.

Through asset monetisation of roads, NHAI aims to achieve the following:

1) Unlocking of Value: Economic value of completed road assets is unlocked, leading to generation of funds that can be invested in new projects 

2) Attracting Alternate Sources of Capital: Alternate source of attracting capital, in addition to traditional sources of funds such as budgetary allocation and toll revenues to ensure adequate and efficient funding.

3) Efficiency Improvements: Through monetisation, there is greater participation in Operations and Maintenance (O&M) of private players, who would ensure higher standards of project management and use of innovative technologies for upkeep of the road asset.

• This can lead to efficiency gains in management of road infrastructure  asset monetisation has thus become an important means to finance the infrastructure commitments made to the nation.

• To ensure the benefits of asset monetisation are realised fully by NHAI and Ministry of Road Transport and Highways (MoRTH), a comprehensive and structured strategy that systematically identifies monetisation opportunities and details the actions required to unlock the same has been formulated. 

What is Infrastructure Investment Trust (InvIT)?

• Infrastructure Investment Trusts (InvITs) are instruments on the pattern of mutual funds, designed to pool money from investors and invest the amount in assets that will provide cash flows over a period of time.

• InvIT is an innovative trust-based financial instrument, which enables participation in infrastructure financing through a stable and liquid  instrument.

• InvITs provide an opportunity to invest in infrastructure assets with predictable cash flows and dividends. 

• InvITs have been introduced in India in 2014 and are employed by infrastructure asset owners to pool in money from a diverse set of investors against pay-out of cash flow generated by the assets on a periodic basis.

• InvITs are established as trusts under the Indian Trust Act, 1882 and regulated under the SEBI (Infrastructure Investment Trusts) Regulations, 2014.

• India has seen a number of InvIT transactions since then.

InvITs – Similar instruments globally

• Globally private institutional funds have complemented debt funds in financing infrastructure investment. There has been a global consensus on the potential for tapping large institutional investors (including pension funds, sovereign wealth funds, etc) as well as retail investors towards infrastructure asset class, especially with lower risk levels (brownfield assets). 

• Two specific instruments seen in the US which have been fairly successful in tapping institutional investors into infrastructure assets are Yieldcos and Master Limited Partnerships (MLPs).

How does it work?

• Under an InvIT transaction, infrastructure asset owners transfer multiple revenue generating asset special purpose vehicles (SPVs) through holding company (holdco) or otherwise to a trust which then issues units to investors for raising money. 

• The upfront money so raised is utilised by the developers for creation of new greenfield assets as also for repayment of debt which enables availability of capital with lenders for investment/lending to new projects. 

• The investors, in lieu of invested money, receive a share of Net Distributable Cash Flows (NDCF – similar to the dividend pay-outs) on a periodic basis, commensurate with their unit holding in the Trust. 

• Improved yields for the unit holders can be insured, by adding revenue-generating projects and expanding its portfolio.

Key stakeholders

• Under this structure, the public asset owner (sponsor) creates an independent trust and transfers the ownership/ rights of the public assets to the same. Investors (unit holders) are the beneficiaries of the trust.

• The sponsor: The sponsor is the public asset owner (for public-owned assets) which sets up the InvIT with the objective to monetise its assets. In case of PPP projects, the sponsor is the infrastructure developer or a SPV holding the concession agreement.

• The trustee: The trustee means a person who holds the InvIT assets in trust for the benefit of the unit holders, in accordance with extant regulations.

• The unit holders: The unit holders are the investors who subscribe to the units of the InvIT. The unit holders are the eventual beneficiaries of the asset.

• The investment manager: The investment manager is responsible for taking investment decisions in the interest of unit holders including addition of new assets / sale of existing assets, leverage, etc.

• The project manager: The project manager brings in the operational expertise of managing the infrastructure assets as per the interest of the unit holders.

• Other key stakeholders incidental to the InvIT registration and issuance process include valuer, auditors, merchant bankers, registrar & transfer agent, banks, registrar to the issue, credit rating agencies and depository participants.