InvestorQ : What will be the implication of government allowing NHAI to raise funds through INVITs? Will that solve their cash flow problems?
Neelam Naik made post

What will be the implication of government allowing NHAI to raise funds through INVITs? Will that solve their cash flow problems?

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Priyanka N answered.
2 years ago
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Union Cabinet has given its approval to the National Highways Authority of India (NHAI) to set up infrastructure investment trusts (InvITs). INVITs are pass-through bodies that can hold a portfolio of infrastructure assets and then pass-through-certificates can be issued against these infrastructure assets. It will help NHAI to remove these assets from its books and will also enable them to focus more on execution than on holding assets. This will also enable NHAI to get foreign and domestic investors to partner in these INVITs. Now, the completed national highways that have a toll collection track record of at least one year can be effectively monetized through the INVIT route. In addition, NHAI also reserves the right to levy toll on certain identified highways.

InvITs are like mutual funds that allow investments from individuals and institutional investors. The only difference is that instead of holding a portfolio of equity and bonds like an MF, the INVIT holds a portfolio of high quality infrastructure projects. Normally, INVITs issue bonds which are secured by the cash flows on such infrastructure projects. 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. Mutual funds, foreign portfolio investors, sovereign funds, LIC and even the Indian EPFO are authorized to invest in such INVITs. It offers a new investment asset class to investors.

NHAI has been under a cash crunch for some time and the issue had also been escalated to the prime minister’s office (PMO). At that point of time, the PMO had asked NHAI to focus on monetizing existing projects and then take up new projects. NHAI plans to raise more than Rs.85,000 crore by fiscal year 2025 through the toll-operate-transfer (TOT) model and infrastructure investment trusts (InvITs).

NHAI will rely on monetizing assets through such routes in the coming years. The completion of the Bharat Mala project will need another Rs.5 trillion and NHAI will looking seriously at this route to proceed in the months to come. It could be like hitting two birds with one stone as NHAI is able to raise the required funds and investors get a new investment class to participate in.

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