Alternative Investment Schemes and Units in Infrastructure Projects

Alternative Investment Schemes and
Units in Infrastructure Projects 1
Introduction:
India’s position is in one of the fastest developing economies in the world. Real estate and
infrastructure are the two most important sectors for a sustainable economic growth and thus have
critical importance for the growth of social and economic parameters. The importance of these
sectors is quite evident from the 2008 financial crises which was triggered mainly by stagnant real
estate sector in the US. There are inherent hindrances to the development of these sectors like high
cost of development, less liquidation of assets, long gestation periods etc., which can be overcome
through continuous technical and financial innovation. A main testimony of the dynamic regulatory
regime is the introduction of InvITs and REITs. Banking and financial institutions have been
overburdened with the responsibility of financing infrastructure and real estate sector. But now,
these sectors have been attracting private financing through SPVs through private equity. InvITs
and REITs provide for an opportunity to participate in financing through liquid and stable
instrument and also encourages good corporate governance structures. It also provides an
opportunity to small and non institutional investors, majorly retail investors to participate in
infrastructure financing and reap benefits of the growth through marketable instruments which are
not much prone to speculation and volatility in equity instruments
In the last couple of years, many infrastructure companies have listed their products on overseas
stock exchange which had their regulatory regime established for business trusts ( like Singapore).
Not all companies were successful in listing their instruments because of high cost of capital and
regulatory expenditure. After introduction of InvITs, capital market of India has overcome the
disadvantage and provided Indian companies with the additional avenue for finances. 2016 was a
watershed year for InvITs- it has witnessed changes in regulatory structure and registration of 6
InvITs including India Grid Trust which filed its Draft Offer Document for an IPO. SEBI has also
1
Priyanka Parag Taktawala
LL.M Gujarat National Law University
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issued many consultation papers to receive comments from the public and amended Securities and
Exchange Board of India (Infrastructure Investment Trust) Regulations, 2014 to introduce changes
and streamline these regulations to align them with challenges of specific sectors, and continuing to
make financial instruments attractive to investors. SEBI has also made a framework for corporate
governance and disclosures for InVITs.
What is InvIT:
Infrastructure investment trust is a trust which is registered under the Registration Act and formed
under Trusts Act. According to the Trusts Act, trust is an obligation which is attached to the
ownership of a particular property. The author creates the obligation of the trust which is accepted
by the owner of the property and is then owed to the beneficiaries which are identified in the Deed.
Under the InvIT, trust is created by the “Sponsor”, ownership is vested with the “Trustee” and the
beneficiaries are “Unitholders”2
InvIT can invest in infrastructure projects only if 90% of the assets comprise of infrastructure
projects which fall under the framework which is provided under the Regulations. For applicability
of InvIT Regulations, “Infrastructure” includes the following infrastructure: roads and bridges,
metros, airports, electricity generation, transmission and distribution, telecommunication, capital
stock of hospitals, hotels and convention centres, common infrastructure for industrial activities 3
The laws which are applicable to InvITs include the InvIT Regulations, InvIT Guidelines, Trust Act,
Registration Act, FEMA and Income Tax Act.
Project SPV/ a Holdco:
Project SPV can be either a company or an LLP in which the InvIT or Holdco proposes to hold
controlling interest and atleast 51% of the equity capital. However, in PPP where holding is not
allowed by the government or by the concession agreement, this clause will not be applicable and
2 'All About Infrastructure Investment Trusts (Invits) - Value Research: The Complete Guide To Mutual Funds'
(Valueresearchonline.com, 2019)
<https://www.valueresearchonline.com/story/h2_storyview.asp?str=33162&utm_medium=vro.in> accessed 1 March
2019.
3 September 9, 2016 issued by the Ministry of Finance, available at
http://egazette.nic.in/WriteReadData/2016/171686.pdf
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will be subjected to the provisions of the Regulations. It also includes a company or LLP in (1)
which holds atleast 99% of its assets directly in such infrastructure projects and does not invest in
other SPVs and (2) which is not involved in any other activity except which is pertaining to
infrastructure projects4
An InvIT can invest in infrastructure projects through SPV but subject to investment restrictions
which includes (1) partner or shareholder of the SPV cant have any rights that prevent InvIT from
complying with the Regulations and (2) Investment Manager after consulting the Trustee, has to
appoint majority of the Board of Directors or the Governing Board of the SPV5
A Holdco can be a company or LLP (1) in which InvIT holds controlling interest and has atleast
51% equity share capital and which in turn has made investment in other SPVs, which at the end
holds infrastructure assets and (2) which is not engaged in activities apart from holding the
underlying SPVs, holding infrastructure projects and activities which are pertaining to such holdings
only6
InvIT can invest in infrastructure project through a Holdco which is subjected to certain restrictions
including (1) holding interest of InvIT in the SPV should be more than 26% and (2) Investment
Manager, after consulting the Trustee, should appoint majority of the Board of Directors of SPV
and Governing Board of Holdco7
Intermediaries which are involved in InvIT:
(a) Merchant Bankers:
Investment Manager has to appoint atleast one Merchant Banker who is registered under Merchant
Bankers Regulations and if there are more than one, one of them shall be the lead Merchant Banker
for the Issue of Units of InvITs. The InvIT is allowed to file the Draft Offer Document only
through a Merchant Banker8. Merchant Bannker has to exercise due diligence and file a certificate of
due diligence along with the Draft Offer Document and the Offer Document while opening of the
4 <https://www.thehindubusinessline.com/markets/irb-invit-distributes-3unit-net-drops-45-in-q2-to-374-
cr/article25301923.ece> accessed 1 March 2019.
5 Ibid

7 Regulation 10 of Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014
8 Ibid
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issue with SEBI. Merchant Bankers also tender their advice on appointment of other intermediaries.
Merchant Bankers are the direct link between the InvIT and SEBI and Stock Exchange during the
listing process which includes the final observation from SEBI and in-principle approval of the
stock exchange. Merchant Bankers also have post- Issue obligations like filing reports with SEBI,
investor grievance redressal, allotments, payment of interest etc.9
(b) Registrar to the Issue:
Any entity which is registered with SEBI has to accept applications from the investors, process these
applications, co-ordinate the allotment process of Units and refund subscription amount where
Units are not allotted. Registrar has to maintain electronic and physical bid data of the bids
received10
(c ) Syndicate Members:
Syndicate members’ job is to collect applications during the Issue period and enter details in the
bidding system of the stock exchanges and conduct preliminary verification before sending
applications to the Registrar of Issue11
(d) Public Issue Banks:
PIBs are banks with which the account for the public offer is opened for collection of application
money which is received from the investors. PIB are not required in a private placement.12
(e) Escrow Bank:
Escrow Bank acts as an escrow agent for the application money which is received after the public
offer from a non ASBA Investor. Escrow bank also manages refunds of excess money which is
received from non ASBA Investors13
(f) Credit Rating Agencies:
9 Regulation 10(5) of Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014
10 Schedule II of Securities and Exchange Board of India (Intermediaries) Regulations, 2008
11 Ibid
13 Ibid
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CRA is responsible for assigning credit to the Units of InvIT which is prescribed under the
Regulations. Credit rating is mandatory according to the InvIT Regulations which is to be obtained
from a CRA if the aggregate consolidated borrowings and deferred payments exceed 25% of the
value of the InvIT Assets.14
(g) Share Transfer Agents, Registered Brokers, Collecting Depository Participants:
They collect applications forms from applicants and enter details in the electronic bidding systems of
the Stock exchange and conduct preliminary verification before sending applications to the Registrar
to Issue15
(h) Advertising agency:
When it is a public offer, advertising agency has the responsibility of publicity and advertising, they
undertake public relations and provide information to Merchant Banker for enabling them to submit
compliance certificate to SEBI. However, advertisements are not allowed in case of private
placement16
Process for registration of an InvIT17:
 Identification and appointment by the Sponsor of a Trustee

 Sponsor has to form a trust under Trusts Act and register the trust under the Registration
Act
 Investment manager and the project manager has to be identified
 Application has to be submitted to SEBI by the Sponsor to register the InvIT along with the
draft of Trust Deed, Investment Management Agreement and Project Implementation and
Management Agreement
 Information which is to be included in the application is
(i) Details of parties of InvIT
15 Ibid
16 Ibid
17 Regulation3, Schedule I of Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations,
2014
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(j) Description of assets which are to be included in the InvIT
(k) Details of investment strategy and business plan
(l) Details of disciplinary action and litigation under securities law against the parties to InvIT
and the directors
 Application to be reviewed by SEBI and queries to be addressed in respect of application
and incorporate comments on the Trust Deed, Project Implementation, Investment
Agreement and Management Agreement
 In principle approval by SEBI for registration
 Submission of Trust Deed and Investment Management Agreement to SEBI
 Grant of final registration certificate as an InvIT
 Sponsor has to transfer the assets which constituted initial portfolio assets of InvIT to the
actual InvIT before allotment of Units of InvIT through public offer or private placements
Offerings by InvITs:
Mandatory listing requirement18:
An InvIT has to list its Units under the Regulations and if the InvIT fails to offer the Units through
private placement or public offer within 3 years of its registration with SEBI, it has to surrender the
certificate of registration and would cease to be an InvIT.
Types of Unit offerings19:
InvIT can undertake listing through IPO (Initial public offer) or a private placement of the Units.
Minimum size of private placement or public offer should be 25 crore Rupees or 2,500 million
Rupees. Listed InvIT can undertake various offerings of its Units like (a) preferential allotment, (b)
follow on public offer, (c) qualified institutional placement, (d) rights issue and (e) bonus issue.
However, InvIT Regulations don’t provide for guidelines or operational rules to undertake such
offerings of Units
Requirements for undertaking private placement or public offer for listing Units 20:
18 Regulations 14,15,19,21,23, Schedule III of Securities and Exchange Board of India (Infrastructure Investment Trusts)
Regulations, 2014
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InvIT will be eligible to undertake private placement or public offer for listing only if the value of
the assets including initial portfolio of assets i.e. value of portion of holding in the underlying assets
is minimum 5,000 million Rupees. Also, the size of the private placement or public offer has to be
atleast 2,500 million Rupees.
Public offer of Units by InvIT21:
Public offer of the units is an offer in which any person who is eligible to invest and they can
participate. Such participation is not restricted only to QIBs and body corporate. Also, any offer
made to more than 1,000 people will constitute a public offer. Public offer can be undertaken by
InvIT only if it complies with the following pre conditions:
(a) Atleast 80% of the value of the assets of InvIT will be invested in completed and revenue
generating projects of infrastructure.22
(b) Maximum 20% of the value of the assets of InvIT will be invested in other investments
which include under construction projects.23
Minimum requirement of 90% of the Issue size is necessary for a public offer. In case minimum
subscription is not received, InvIT w shall refund the application money which is received from
prospective investors within 12 working days from the Opening Date of the Issue, if they fail to
refund the application money, Investment Manager is liable to pay an interest of 15% per annum for
the delay period. There has to be atleast 20 investors in the public offer and each investor should
hold not more than 25% of the Units at any given time.24
Private placement of Units by InvIT25:
Private placement is offer which is limited only to OIBs and body corporate. Minimum number of
holders of Units in a private placement, other than Sponsor, associates and related parties is 5, out of
which each holder holds not more than 25% of the Units. Private placement can’t be made to more
than 1,000 investors. No advertisements can be issued related to the private placement. Minimum
20 Ibid
22 Ibid
23 Ibid
24 Ibid
25 Regulation 14, 15 of Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014
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80% of the value of the assets has to be invested in infrastructure projects. There is no minimum
subscription requirement in private placement.
Parties and Intermediaries to an InvIT:
Sponsor26:
InvIT is a trust, Sponsor of InvIT is the author of it and has to transfer the initial portfolio of assets
to InvIT. Sponsor can be a company, body corporate or LLP. In PPP, Sponsor has to be an
infrastructure developer or SPV which has a concession agreement.
Eligibilities to be a Sponsor are27:
(a) Body corporate or a company’s net worth should be atleast 1,000 million Rupees. If it as
LLP, net tangible assets should be atleast 1,000 million Rupees.
(b) Sponsor or associates should have a stable and sound track record of minimum 5 years in
the field of development of infrastructure or fund management in the sector. If the Sponsor
is infrastructure developer, it should have developed atleast 2 projects
Rights and duties of the Sponsor28:
(a) Establishing trust, appointing a Trustee and Investment Manager and applying to SEBI for
registration
(b) Transferring to InvIT, its entire shareholding in the Holdco or SPV or ownership of the
project before allotment of Units
Trustee29:
26 Regulation 7 of Securities and Exchange Board of India (Intermediaries) Regulations, 2008

27 Ibid
28 Ibid
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Trustee is the owner of the assets of the InvIT which are held by it in trust. Trustee holds the assets
for the Unitholders benefit. ownership of the assets is transferred by the author/sponsor.
(a) Trustee has to be registered with SEBI under the Debenture Trustee Regulation
(b) Trustee cannot be an associate of the Sponsor, Project Manager or Investment Manager
(c) Trustee should have the necessary infrastructure and human resources to undertake the
obligations
(d) Trustee should be a fit and proper person
Duties, roles and responsibilities of Trustee30:
 Appointment and removal of Investment Manager and Project Manager

 Overseeing activities of Project Manager and Investment Manager in the interest of
Unitholders
 Enter into agreements like Trust Deed, Project Implementation & Management Agreement
and Investment Management Agreement etc.
 Ensure that various reporting and disclosure requirements are complied with
 Review status of complaints of the investor and redressal by Investment Manager
 Distribution declarations to the Unitholders
 Ensuring that the activities of InvIT are carried out according to the Trust Deed,
Regulations and Offer Document
Investment Manager31:
Investment Manager has the responsibility to undertake investment decisions, managing InvIT
Assets, initiating activities which are related to corporate aspects like Unitholder’s meering, investor
grievance redressal etc, ensuring that the requirements are complied with
Investment Manager can be a company, LLP or body corporate. Eligibility of Investment Manager
is32:

30 Ibid
32Regulation 3, Schedule I of Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations,
2014
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(a) If Investment Manager is a company or a body corporate, net worth should be atleast 100
million and if it is an LLP, net tangible assets should be atleast 100 million
(b) Investment Manager should have experience of atleast 5 years in advisory services, fund
management or development of infrastructure sector
(c) Investment Manager needs to have atleast 2 employees, each employees should have atleast
5 years experience in advisory services or fund management or development of
infrastructure sector
(d) Investment Manager needs to have minimum 1 employee who has minimum experience of 5
years in relevant sub sectors
(e) Board of Directors or the governing board of the LLP of the Investment Manager should
have atleast 50% independent directors
(f) 50% of the Board of Directors or the governing board of the LLP of the Investment
Manager should not be on the Board of other infrastructure investment trusts
Duties, roles and responsibilities of Investment Manager 33:
(a) Investment decision making regarding underlying projects or assets of InvIT which includes
future investment and divestment
(b) Supervising activities of Project Manager for ensuring compliance with Regulations
(c) Ensuring that the investments are in accordance to the Regulations and investment strategy
(d) Appointing intermediaries for activities of the InvIT after consulting the Trustee
(e) Ensuring timely and adequate redressal of grievance of Unitholders regarding activities of
InvIT
Project Manager34:
Project manager has the responsibility to achieve execution or management of the project. In PPP,
Project Manager has to be the entity which is responsible to execute the infrastructure project and
achieve the milestone according to the concession agreement and other documents. For entity to be
a Project Manager, it needs to be identified in the registration application and Draft Offer
Document
33Ibid
34Regulation 3, Schedule I; Regulations 14,15,19,21,23, Schedule III of Securities and Exchange Board of India
(Infrastructure Investment Trusts) Regulations, 2014
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(a) Project manager has to undertake management of the Assets of the InvIT which includes
arranging for maintenance, appointment and supervising agents etc
(b) Project manager has to also discharge the obligations of achieving timely completion of the
project which includes implementation, maintenance, operation and management of the
project.
Valuer35:
According to Section 247 of the Companies Act, 2013, Valuer can be any person who is a
“registered valuer” appointed by the Investment Manager for undertaking technical and financial
valuation of the Assets. Valuer cannot be an associate of the Sponsor or the Trustee of the
Investment Manager and should have minimum 5 years of experience in valuing infrastructure
assets
Under the InvIT Regulations, following entities can be a Valuer of InvIT: (i) chartered
accountant, (ii) cost accountant, (iii) company secretary, (iv) retired member of the Indian
Corporate Law Service, (v) merchant banker who has atleast 5 years of experience
Duties, roles and responsibilities of Valuer 36:
(a) Valuer has to ensure that the valuation of the Assets are true, impartial and fair in
accordance to the InvIT Regulations
(b) Ensuring robust and adequate internal control for ensuring the integrity of valuation controls
(c) Has to disclose to the InvIT if there is any pending business transactions or other
arrangements with the Investment Manager with whom the InvIT is contracting and any
other details which might hinder the Valuer’ independence and professionalism
Auditor37:
Auditor will be appointed by the Investment Manager for a maximum of 5 consecutive years.
Auditor, who is not an individual, can be further reappointed for another 5 years but subject to
approval of Unitholders. Auditing of the InvIT’s financial statement should be done atleast once a
year.
35 Regulation 2 (zzf) of Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014
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Auditor will audit and deliver a report on the financial statement to include it in the Draft Offer
Document, Offer Document and then the Final Offer Document or in case of private placement,
the placement memorandum. This report will include audited financial statements which are
prepared according to the applicable accounting standards. Auditor is mandated to subject itself to
peer review process of ICAI and also have a certificate which is issued by the Review Board of the
ICAI. Auditor has to certify forward looking projections which include assumption that the Assets
are owned by the InvIT. Auditor also has to prepare a statement of tax benefits which will be
available to the Unitholders and the InvIT38.
Also, market practice also mandates Auditors to provide “comfort letter” to the Merchant Bankers
at various stages in the Issue process, which is “negative assurances” or changes in the financial data,
statement records or operational and financial data which is included in the Draft Offer, Offer
Document and Final Offer Document or in private placement, Placement Memorandum 39.
Transaction Documents:
Disclosure documents which are prescribed by SEBI40:
(a) For a private placement, final placement memorandum is required to be filed. There is no
requirement to submit draft Placement Memorandum with SEBI for review 41
(b) For a public offer, Draft Offer Document is required to be filed atleast 30 days before filing
the Offer Document with the Stock Exchange and SEBI and has to make it available to the
public for atleast 21 days. Comments which are provided by SEBI on Draft Offer
Document has to be incorporated in the Offer Document.42
(1) Structure Related Transaction Documents:
These documents are related to setting up of InvIT, allocation of responsibilities, transfer of

portfolio assets to InvIT and mechanism for utilization of cash flow of SPV for distributing it to the
Unitholders.
38 Ibid
39 Ibid
42 Ibid
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(i) Trust Deed43: it is the constitutional document of the InvIT. It is entered between the
Sponsor, the Trustee and the InvIT before the registration of the InvIT. It sets out the
objectives of the InvIT and powers, duties, functions and responsibilities of the Investment
Manager and Trustee. Copy of the draft Trust Deed has to be submitted along with
registration application of InvIT to SEBI
(ii) Investment Management Agreement44: Investment Management Agreement is entered

into between the Trustee and the Investment Manager before the registration of InvIT. It
sets out the power, functions, responsibilities and duties of Investment Manager and also
those which are delegated by the Trustee
(iii) Project Implementation and Management Agreement45: it is entered into between the
Trustee, Investment Manager, Project SPV and Project Manager before the registration of
the InvIT.
(iv) Shareholders’ Agreement46: if the InvIT doesn’t hold 100% of the SPV or the Holdco,
Shareholders’ Agreement is mandatory to be entered into between the shareholders or
partners of Holdco or SPV and the InvIT. Such an agreement should be entered into before
investing in the SPV or Holdco
(v) Asset Purchase Agreement or Share Purchase Agreement47: this agreement is entered into
to transfer the SPV or Holdco which comprises of the portfolio assets from the Sponsor to
the Trustee. Share Purchase Agreement is entered between the Sponsor, Trustee, Investment
Manager and the Holdco or the SPV. Share Purchase Agreement or Asset Purchase
Agreement has to be finalized before filing Draft Offer Document. It has to be executed
before filing the Offer Document or Placement Memorandum and the closing has to be
before allotment of Units in the offer.
44 Regulation 3, Schedule I of Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations,
2014
45 Regulation 23(5), Schedule IV of Securities and Exchange Board of India (Infrastructure Investment Trusts)
Regulations, 2014
46 Ibid
47 Ibid
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(vi) Debenture Subscription Agreement or Loan Agreement48: it is entered into to establish
an efficient mechanism to transfer cash flows of SPV to the InvIT. This cash flow is then
used to distribute it to the Unitholders. It is entered into between the Trustee, Investment
Manager and the SPV before filing Offer Document or Placement Memorandum with SEBI
(2) Listing related Transactional Documents:
(i) Issue Agreement 49 : Issue Agreement is entered between the Merchant Bankers,
Investment Manager, Sponsor and Trustee before filing Final Order Document. It sets out
the roles and responsibilities of the Merchant Bankers, Trustees, Investment Manager.
Obligation of Merchant Banker is several and not joint. Fee arrangement is governed by
engagement letter between Merchant Banker and Investment Manager. If the public offer
has offer for sale, the shareholders will also be a party to the Issue Agreement. Issue
Agreement is not necessary for a private placement if there is an underwriting agreement.
(ii) Escrow Agreement50: Escrow Agreement is to define arrange for collection of application
bid amount from non- ASBA Investors. Agreement is entered into between the Trustee,
Investment Manager, Merchant Bankers, escrow collection banks and Registrar to the issue.
This agreement will also provide for the manner through which funds are transferred from
the escrow account to public offer account or refund account
(iii) Underwriting Agreement51: it is entered into between the Investment Manager, Trustee
and underwriters after deciding the price and allocation of the Units, before filing the Final
Offer Document. Underwriters agree to make payment in respect of certain units allotted to
the Unitholder which is procured by them and incase they default in payment for the unit,
the underwriter has to get more purchasers of purchase themselves the units which are
defaulted.
Process for Issue and Listing:
48 Ibid
49 Schedule –A of SEBI Guidelines for public issue of InvITs, 2016
50 Ibid
51 Ibid
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Public Listing:
(1) Pre filing of Draft Offer Document52:

 Appoint Merchant Bankers and legal advisors
 Hold a meeting when the senior management has provided for an overview of the
Sponsor and the business to the Merchant Bankers and the timelines are then
discussed
 Identify the InvIT Assets, Investment Manager, Trustee and Project Manager
 Prepare a data base for maintaining the details
 Commence due diligence along with drafting the Draft Offer Document
 Submit the application along with the draft Trust Deed, Projection Implementation,
Investment Management Agreement for SEBI to grant certificate of registration
 Receive comments from SEBI on the Trust Deed, Investmement Management
Agreement etc.
 Execute the Trust Deed and Investment Management Agreement
 Receive certificate of registration from SEBI for the InvIT
 While the agreement for acquisition of portfolio of assets i.e Asset Purchase
Agreement or Share Purchase Agreement will be executed before filing Draft Offer
Document, closing the transaction will be later, but before allotment of Units.
Closing of Debenture Subscription Agreement or Loan Agreement between Project
SPV and InvIT will be after receiving the final listing of Units and trading approval.
(2) Filing Draft Offer Document53:
 Issue Agreement is executed

 Standard certificate which is provided by Trustee, Investment Manager and Sponsor
is executed and the comfort letter is provided by the auditors
 Draft Offer Document is filed with SEBI along with due diligence certificate by
Merchant Bankers
 Application is filed with the Stock Exchanges for granting in principle approval for
trading and listing the Units.
52 Schedule- A (2) of SEBI Guidelines for public issue of InvITs, 2016

53 Ibid
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(3) SEBI review and observations54:
 Reply to interim observations which are received from SEBI for the Offer
Document
 Receipt of final observation from SEBI
(4) Post final observation and filing of Offer Document55:
 File reply to final observations which are received from SEBI along with Draft Offer
Document
 SEBI’s approval for the new updated Draft Offer Document
 Execute escrow agreement and syndicate agreement
 Execute updated comfort letter and standard certificate
 File the Offer Document with SEBI and Stock Exchange for approval
(5) Issue period56:
 Announce floor price or price band atleast 5 days before the opening of Issue
opening date
 Open the Issue atleast 5 days after the date of filing the Offer Document with SEBI
 Open the bidding period for subscription by investors except Anchor Investors
 Close the Issue
(6) Post Issue period57:
 Registrar shall get electronic bids from Stock Exchange

 Investment Manager will decide the Issue price after consulting the Merchant Banker
 Finalize the Issue price and file the Final Offer Document with SEBI and Stock
Exchange and execute the underwriting agreement
 Registrar to the Issue will submit final basis of allotment to the Stock Exchange
 Registrar and Merchant Banker instruct the collecting banks for credit of funds into
the public offer account
 Investment Manager will allot the Units and credits to the successful bidders
54 Ibid
55 Ibid
56 Ibid
57 Ibid
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 Investment Manager makes listing and trading approvals from the Stock Exchanges.
Stock Exchanges will provide final listing and trading approvals
 Trading commences henceforth.
Private Placement:
(1) Pre-filing of Placement Memorandum58:

 Appointment of legal counsels and Merchant Bankers
 Arrange a meeting with the senior management and provide an overview of the
Sponsor and the Merchant bankers and discuss the Timelines
 Identify the Trustee, Investment Manager, Project Manager and the Assets
 Prepare data room of the information
 Commence the exercise of due diligence along with commencing the drafting of the
Placement Memorandum
 Submit the application along with the Draft Trust Deed, Project Impplementation
and Management Agreement and the Investment Manager Agreement for grant of
certificate of registration
 Receive the comments from SEBI on the Trust deed, Project Implementation and
Management Agreement and the Investment Management Agreement
 The agreement for acquiring the initial portfolio of shares i.e Share Purchase
Agreement and Asset Purchase Agreement has to be executed before the filing of
Placement Memorandum.
(2) Filing of Placement Memorandum59:
 Application has to be filed with the Stock Exchanges for granting in-principle
approval for trading and listing of Units
 File Placement Memorandum with SEBI 5 days before the opening of the Issue
(3) Post filing of Placement Memorandum60:
 Close the Share Purchase Agreement and the Asset Purchase Agreement
 Allot the Units to the investors
58 Regulation 14(2) of Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014
60 Ibid
17 | P a g e
 Application filed for final listing and trading approvals from the stock exchange
 Listing and Trading of Units on the Stock Exchanges
Investors and Investments:
 Private Placement61: Investors are categorized into (i) QIBs and (ii) Body corporate. There is
no allocation required for each in this category
 Public Offer62: (i) Institutional Investors have to be allotted not more than 75% of the Units
(ii) Other investors have to be allotted not more than 25% of the Units
 Institutional Investors63: Institutional Investors can invest in the public issue of InvIT’s
Units but there are certain restrictions for the same. Certain categories are restricted from
investing in them because their legislations do not permit them to invest in such securities.
These investors are (i) Insurance Companies (ii) Schedule Commercial Banks
 Anchor Investors64: Anchor Investors are Qualified Institutional Buyers, however, anchor
investor has to invest more than 10 crore and they bid earlier than the QIBs. Anchor
investors lead the bidding process in an IPO. Their participation gives reliable signs to the
investors, if the IPO has a strong investment from anchor investors, it encourages other
investors to invest in the IPO
 75% of the Issue will be allotted to Institutional Investors on proportionate basis. After
consulting Merchant Bankers, Investment Manager can allocate 60% of the Institutional
Investor’s proportion to them65
 Strategic Investors are also included as Anchor Investors
 Anchor Investors has to apply for atleast 100 million in the public offer
 Merchant banker or any person related in the public offer cant apply as an Anchor Investor
except mutual funds
Distribution Requirements:
61 Regulation 2(zl) of Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014
62 Regulation 2(zj) of Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014
63 Regulation 2(zq) of Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014
64 Ibid
65 Ibid
18 | P a g e
InvIT has to distribute atleast 90% of its net cash flow to the Unitholders. The SPVs are required to
distribute atleast 90% of their net cash flow to the InvIT or the Holdco. In case the structure is two-
tired, Holdco has to distribute to the InvIT (i) 100% of the cash flows which is received from the
SPV and (ii) 90% of the net cash flow generated by it 66
This distribution will be made (i) once every 6 months in publically offered InvITs and (ii) once
every year in case of privately placed InvITs and has to be made within 15 days from the date of
declaration. In addition to these periodic distributions, if any infrastructure assets are sold by the
InvIT, 90% of the proceeds of sales have to be distributed to the Unitholders, unless these proceeds
are to be reinvested in other infrastructure assets within 1 year67
Infrastructure Financing:
Building an infrastructure is a capital intensive process which involves low operational cost but high
initial costs. It requires a long term finance because the gestation period is longer than any other
sector. Infrastructure project is non recourse or limited recourse financing. Lenders can only be
repaid from the revenues which are generated from the project. Thus, market and risks which
include uncertainty of demand68. SPVs usually don’t have recourse to their parent company after the
initial capital is invested, nor do they have a strong balance sheet or credit history. Therefore, it
affects their capability to secure financing from the public. Because the output is non-tradable ( since
revenues accrue in local currency), such projects should be funded domestically in order to avoid
high risk of foreign exchange, though instruments help to mitigate the risks if there is a well
developed financial market in the country69.
(1) Debt Financing70:
Infrastructure financing has increased rapidly over the last few years with the rise in private
investment in this sector. This is majorly because of the dominant role which is played by
commercial banks and public sector banks which are willing to provide the finance required.
Lending by commercial banks for infrastructure which was followed by specialized Non Banking
67 Ibid
68 Ibid
69 Ibid
70 Rajat Sharma, 'Indigrid Invit – Should You Invest?' (Sana Securities Blog, 2019)
<http://www.blog.sanasecurities.com/india-grid-invit-invest-not/> accessed 4 March 2019.
19 | P a g e
Finance Companies (NBFC) which are dependent on the funds received by the banks also.
Insurance sector which is majorly dominated by LIC has also increased its financing in the
infrastructure sector71. Specialized NBFCs play a significant role in financing the infrastructure
sector, but their growth is constrained because they don’t have access to bank finance, in absence of
wholesale funding. There are tight prudential limits for lendings to NBFCs72. Even if the NBFCs are
able to fund the project by bank funds, the cost would be quite high because of higher incidental
capital charges and provisioning requirements. Banks are more inclined to provide finance for a
shorter tenor and have to annual reset their interest rates, therefore passing their interest rates to the
NBFCs73.
Insurance companies are another source for funding for the NBFCs. Insurance companies and
pension funds are perfect for funding the infrastructure projects because they have long term
liabilities. But in India, they are not well developed to penetrate the infrastructure sector. Statutory
restrictions by the government limit their investment in infrastructure74. Major restrictions are
minimum credit rating for debt instruments and minimum dividend payment. These conditions are
quite difficult for a private infrastructure project as they are established as an SPV and do not have
high credit rating. Public insurance companies invest more that what is required in government
securities and in public listed infrastructure companies to meet their minimum social sector
requirement instead of funding infrastructure projects.75
(2) Equity Financing:
High levels of debts require more equity to balance it, considering the level of risk involved in the
project. Equity is provided by the Sponsor to the SPV, who taps the primary market for required
71 'How Invits Or Infra Investment Trusts Can Make Money For You' (The Economic Times, 2019)
<https://economictimes.indiatimes.com/markets/stocks/news/how-invits-or-infra-investment-trusts-can-make-
money-for-you/articleshow/58838576.cms?from=mdr> accessed 4 March 2019.
72 'India Infrastructure Finance Company Ltd (IIFCL) | Department Of Financial Services | Ministry Of Finance |
Government Of India' (Financialservices.gov.in, 2019) <https://financialservices.gov.in/banking-divisions/Financial-

Institutions-and-others/India-Infrastructure-Finance-Company-Ltd-(IIFCL)?page=1> accessed 4 March 2019.
73 'Infrastructure Companies Need To Work On Innovative Instrument To Attract Global Funds: Suresh Prabhu' (The
Economic Times, 2019) <https://economictimes.indiatimes.com/news/economy/policy/infrastructure-companies-need-

to-work-on-innovative-instrument-to-attract-global-funds-suresh-prabhu/articleshow/66084367.cms> accessed 4 March
2019.
74 Ibid
20 | P a g e
capital. Substantial capital is raised by the companies from an IPO from the secondary market76.
Developers have limited capital and have to utilize it for a longer duration of time of the project. It
is important to include financial investors so that the promoter’s capital is recycled and invested in
another project. Financial investors are interested recently in this sector considering the number of
private equity and infrastructure funds which are formed. Most infrastructure projects are unlisted, it
is a disincentive for equity investors in infrastructure sector. In most cases, lenders are repaid but the
equity holders suffer a loss.77
What should can done:
For equity capital, many measures can be taken to invite entry of financial investors. Removing or
liberalizing the restrictions on financial investors, improving exit options for making exiting the
project a little more easier. We can’t rely only on domestic banks for meeting future requirements of
debt financing because of the high risks involved in it. Banks have to raise additional capital for
avoiding concentration of sector risk.
The advantage attached with NBFCs is the technical knowledge they have of the sector and the
complexities along with the risk absorption capacity for long gestation projects. Appraisal skill for
infrastructure project is limited in experience and scarce because of the PPP arrangement, NBFCs
play a vital role in procuring loans. Insurance companies also lean more towards highly rated NBFCs
for lending for infrastructure projects. NBFCs need to access the wholesale funding source which is
provided by multiple institutional players NBFCs are able to mitigate the risks and utilize their
capital optimally to churn their assets through securitization. Securitization is important because it
allows the banks and NBFCs to mitigate their risks.
Private placement of debt has limited significance. A bond market is important to provide greater
liquidity and risk mitigation. Bond market in India is small and undeveloped. Corporate bond market
is the least developed and not liquid at all. Indian corporate debt market trading is as good as
to-work-on-innovative-instrument-to-attract-global-funds-suresh-prabhu/articleshow/66084367.cms> accessed 4
March 2019.
77 Pallavi Pengonda Harsha Jethmalani, 'Invits Suffer From A Case Of Misplaced Expectation' (https://www.livemint.com,
2019) <https://www.livemint.com/Money/e4OLKm4IbNvDsNfz5elj2N/InvITs-suffer-from-a-case-of-misplaced-
expectation.html> accessed 4 March 2019.
21 | P a g e
insignificant and the issuance is on private placement basis. It has been called a “ privately placed
loan market in the guise of a bond market”.
Infrastructure Development Fund (IDF)-
IDF is an attempt to address the problem of long term debt sourcing for infrastructure projects.
IDFs were established to enhance and accelerate the flow of long term debt. IDFs are to
supplement lending provided for infrastructure projects and provide a separate vehicle to refinance
the existing debt which are presently funded by the commercial banks and free their capital for other
projects. these IDFs can be established by Financial Institutions, Banks and Non Banking Financial
Companies. IDFs can be set up as a Mutual Fund or as NBFC78
Comparison of Debt Fund Structures between NBFCs and Mutual Funds:
Particulars Mutual Funds NBFCs

Structure Like a private equity fund Raise funds through Bonds and
Fund with Equity and Debts
Capital 100% equity finance 10% equity and 90% debt
instruments
Only domestic investor can
invest
Can issue a bond but with
minimum tenor of 5 years
Maturity Tenor of 5-10 years Going concern
Eligible Assets 90% debt instruments and 10% PPP project with atleast 1 year
equity for projects at any stage of operation
Minimum Credit Rating of 30% investment limit on Domestic BBB-
Investments unrated or if rated, below
domestic BBB-
50% if approved by the asset
management company’s trustee
Regulator SEBI RBI
78 Ibid
22 | P a g e
Maximum Loan No limit 85% of the project cost under
the concession agreement
There are currently 3 NBFC IDFs- L&T IDF, IDFC IDF and ICICI Bank backed infra Debt are
active with consolidated asset of around INR 60 billion which is still a small amount when compared
to the quantum of infrastructure loans which are given by banks79
Functioning of IDF- Mutual Funds:
IDF-MF will raise resources through issuing Units of atleast 5 years maturity period, which will be
listed on the Stock Exchange and can be traded among investors. It has to invest atleast 90% of the
assets in the debt security of infrastructure companies or SPVs which are across all infrastructure
sectors and project type.80 Returns on the assets of the IDF will be distributed directly to the
investors after deducting the management fees. Credit risk which is associated with the project has
to be borne by the investors and not IDF. An existing mutual fund can also initiate an IDF
Scheme81
Functioning of IDF- NBFC:
IDF-NBFC will raise resources by issuing rupee denominated bonds of atleast 5 years maturity
period, which will be tradable between the investors. It can be invested in debt securities of only
PPP (Public Private Partnership) which will have a buyout guarantee (compulsorily buying out the
Project in case of termination of the Concession Agreement) and has to complete atleast 1 year of
commercial operations82. IDF will takeover upto 85% of total debt amount which is covered by the
concession agreement. Senior lenders will be retaining the remaining 15% for which they can charge


2019.
23 | P a g e
a premium from the infrastructure companies. Here, credit risk which is associated with the project
will be borne by the IDF. This structure is mainly for investors who are high risk takers. 83
Masala Bonds- Low Risk High Potential:
Indian Rupee denominations as bonds are issued in offshore capital markets to help and expand the
avenues for debt funding of these infrastructure projects. The RBI’s effort is to start the issuance of
these off shore bonds by Indian companies and are consistent with the international standards to
reduce the disparities in currency denominations for the resident entities. These bonds are called
Masala bonds.84 Rupee denominated bond is to shield issuers from the risk of currency fluctuations
and also transfer the risk to investors who buy these bonds. As the investors will bear the currency
fluctuation risk, they will demand a premium coupon for it. Form the investors perspective, stable
currency is the main attractive feature for such offerings. To compare the local currency bond , a
similar overseas bond provides for an expanded market, there is a diverse liquidity pool and new
investors who might not be present onshore.85
Coupon Rate86: pricing of the bonds is the key element because of the very nature of the instrument.
India is rated BBB- by global rating agencies. Sovereign rating usually influences pricing of such
bonds. BBB- rating is just next to junk rating, investors expect a higher coupon, which makes such
bonds costly for Indian borrowers as compared to borrowers from countries which are rated better
than India.
Liquidity of Indian Currency and Rating of the Issuer87: Liquidity of the currency is an important criteria as
this provides an impetus to the subscribers of the issue. Past experiences reflects that the issuances
by the Public Sector Units are subscribed faster because of the nature of business and risk mitigation
provided to international investors
83 Ibid
85 Ibid
86 Ibid
24 | P a g e
Concerns of Masala Bonds88: overall credit rating of the country has to be considered before rating an
individual bond and the company, therefore, most Indian companies are treated as sub-investment
grade by these international investors. Allowing Indian companies to raise Rupee Denominated
loans from overseas market is moving towards full convertibility of the currency. Investor has to
take a call on the stability of the country and currency risk over the lifetime of the project, therefore,
a stable currency and sound sovereignty will influence the decision of the investor to participate in
masala bonds
Advantages of IDFs89:
One problem which is faced by banks while providing loans to infrastructure projects is the
mismatch of asset liability which is inherent with such projects. Thus, many infrastructure projects
are not provided finance by banks. IDF which issues bonds, credit enhancement in PPP projects will
be available. Such projects have a lower rate of risk involved and a higher credit rating. IDF which
issues Units, there is higher credit risk which is borne by the investors who are free to demand
higher returns later. After refinancing bank loans of the existing projects, IDFs have to take a larger
volume of the existing bank debt which will provide for an equal volume of new lending to
infrastructure projects. Therefore, IDFs have to channelize the long term low cost resources for
infrastructure financing. For IDM-MF, a bigger pool of assets is provided for investments in
airports, telecommunications, roads and social infrastructure like schools, hotels, hospitals etc.
NBFCs have restrictions to partly take out, mutual funds can take out 100% of the exposures.
Mutual funds are allowed to invest at any stage of the project cycle, IDF-NBFC has less risk
involved because it invests only in operational projects which are developed using PPP model.
Comparing with Global Scenario:
InvIT is a newer concept in India, tools to finance them like Business Trusts (BTs) have existed
since a few years in countries like Hong Kong, Singapore, Malaysia etc. In Singapore, trust manager
operates and holds business units to benefit the investors. Investors usually do not have any control
89 Ibid
25 | P a g e
over operations of the company90. Trust manager is usually an individual company which comprises
of Independent directors and management team. This model is in support of efficient management
and strong governance- qualities which appeal to investors, considering their interest is paramount.
In Hong Kong, business trusts use a stapled unit in company and units in BT. Stapling means that
two different securities are “stapled” together for transferring and trading. Trusts and companies
hold assets and then operate the businesses, but the active business such as asset development and
management are conducted by company while investments in funds and property are undertaken by
the trust91. Trustee manager in Hong Kong doesn’t get any management fees or incentives and only
receives reimbursement of expenses and costs. BTs in Malaysia are pool of cash generating assets
and distribute a large portion of profits to the investors.92
All these models have been successful in their respective countries. Our InvIT structure is modeled
on identical principles and is tailored to Indian Infra developers after consulting experts. The most
critical factor for its success will be ethical implementation and execution.
InvIT- The Journey so Far:
Companies with a strong portfolio, resilient track record, steady revenue stream can be potential
candidates for investment. Companies in roads, power, transmission have applied for SEBI
registration. In my view, debt-laden infrastructure entities looking for long term equity options are
best to apply for InvITs. Following is an indicative list of companies which has approval from
SEBI:93
Name of Company Assets to be transferred

IRB Infrastructure Developers Ltd Roads
2019.



2019.
26 | P a g e
GMR Infrastructure Ltd Mix of operational road and transmission
assets
MEP Infrastructure Developers Ltd Toll collection and operation, maintain &
transfer assets
IL&FS Transportation Networks Ltd Roads, thermal and renewable energy assets
Sterlite Power Transmission Ltd Power transmission assets
Adani Group Ports, power transmission lines and power
generation assets
Mytrah Energy Limited Renewable energy assets
Challenges for Issuers of InvIT:
The ability to provide an environment of volatile interests is the main challenges for any issuer.
Additionally, issuers face challenge to obtain a premium valuation for their invested assets which
depends on a number of factors like sponsor experience, credibility, quality and ability to generate
revenue of the underlying assets. InvITs are competing with domestic products with similar
characteristics like AIF which offer more flexibility in everyday operations and also allows the
investors to invest in infrastructure assets.94
Initially, investors in the infrastructure sector are patient and have a longer horizon for their
investments. Government pushes the investment in infra sector which offer products like InvIT is a
positive for the sector which help in attracting investors and getting fresh capital. The first few
InvITs have gone through rigorous compliances and tax structuring but to succeed, they should
offer the desired yield to the Investors.
Pension Fund Industry:
Pension fund and provident fund are repositories for large amount of long term finance. Because of
Government regulations, pension funds are a notionally funded scheme. 2/3rd of the fund exists as
special deposits with the Central Government. These funds can’t be withdrawn for deployment in
94<https://www.thehindubusinessline.com/markets/irb-invit-distributes-3unit-net-drops-45-in-q2-to-374-
27 | P a g e
other projects/avenues95. A major portion of the remaining fund are invested in Government
securities which are locked in for 2 reasons: (i) once a Government security is subscribed for,
regulations have mandated to be held till maturity. (ii) investment guidelines have mandated that
interest which is received from the Government securities should be reinvested in the same
securities. Because of the huge investment which is required for investment in infrastructure sector,
which cant be met only using the domestic savings, there is a strong need to divert funds from
International market as well96
Challenges Faced by Pension Funds:
There are many numerous issues which need to be overcome to attract more investment including
the perception that India is still a challenging country for infrastructure investment because of the
prevailing risk which is associated with projects and investment structures due to unpredictable
regulations and taxation policies. India also faces competition from smaller countries like Columbia,
Chile, Australia, Peru among others, many of them have created easier investment models in this
sector.97 This class of investors usually help in monetizing high ticket investments and hence freeing
the capital which is then used for other projects. Government has put in efforts to allow pension
funds and promote new investment structure. Other issues are valuation expectations by the
promoters and the discount rates which are applicable to the assets. Mismatch in valuation and other
issues have to be straightened for investment to be smooth.98
Projects and Segments which are suitable for Financing Products:
Debt Products99:
Product Segments Applicable
2019.
96 'Sebi Proposes Easier Norms For Reits, Invits For Greater Access' (The Economic Times, 2019)
<https://economictimes.indiatimes.com/markets/stocks/news/sebi-proposes-relaxed-norms-for-reits-invits-for-
greater-access/articleshow/67754981.cms?from=mdr> accessed 5 March 2019.


99 Ibid
28 | P a g e
Long term Bonds Roads, Ports, Power Projects with an operational
(Conventional and Renewable), history providing adequate
Airports, Railways, revenue to the investors
Transmission
Masala Bonds Projects with high cost of debt This product is suited for
and low revenue risk. financial institutions for lending
to infrastructure projects. Will
help in reducing significant
interest cost for projects with
high cost of debt
IDF-MF Roads, airports, ports, water, IDF-MF can invest at any stage
power generation, power in the project cycle including
transmission, social Greenfield and brown field
infrastructure projects
IDF-NBFC Roads, ports, airports Limited to PPP projects
Equity Products100:
Product Segment Applicable

InvITs Roads, Transmission, Power Apt for corporate houses with a
substantial portfolio of highly
leveraged operating assets with
stable annuity like yield bearing
cash flows
Pension Funds Roads, Renewables Projects with long gestation
periods and revenue certainty
are a perfect fit for funding
from pension funds. Typically
characterized by low risk and
100'India Infrastructure Finance Company Ltd (IIFCL) | Department Of Financial Services | Ministry Of Finance |
29 | P a g e
moderate returns expectation.
India Infrastructure Finance Company Ltd (IIFCL)101:
Funding Foundation of the Future:
IIFCL is a wholly owned company of the Government of India, set up in 2006 for providing long
term finance to infrastructure which is viable through Scheme called “Financing Viable
Infrastructure Projects” through a SPV (Special Purpose Vehicle) called India Infrastructure Finance
Company Ltd.
The sectors which are eligible for assistance from IIFCL financially, are according to the
Harmonized list of Infrastructure Sub-Sectors which are approved by the RBI and Government and
are amended regularly. These sectors include energy, transportation, water, communication,
sanitation, commercial and social infrastructure.102
IIFCL is registered as NBFC-ND-IFC with RBI. Authorized capital of the company is 3,900 Crore.
IIFCL has a gross sanction of 63,800 Crore under direct lending for over 360 projects and
distributions of 45,000 crore under Refinance and Takeout Finance.103
Senior Debt: being a part of the consortium, IIFCl has provided for long term funding to
commercially viable projects like taking exposure of 20% of the Total Project Cost. In PPP projects
that provide for compulsory buyback on termination, IIFCL offers loan with a longer tenure than
other lenders and other lenders are paid out, remaining the sole lender.
Subordinate Debt: IIFCL provides for a subordinate debt of upto 10% of the project cost including
the exposure of 20% of the Total Project Cost. This is also a Quasi Equity. 104

103 'Sebi Proposes Easier Norms For Reits, Invits For Greater Access' (The Economic Times, 2019)
<https://economictimes.indiatimes.com/markets/stocks/news/sebi-proposes-relaxed-norms-for-reits-invits-for-
greater-access/articleshow/67754981.cms?from=mdr> accessed 6 March 2019.
30 | P a g e
Takeout Finance: this scheme of IIFCL has addressed the Asset Liability Mismatch and constraints
which are faced by banks by removing the loans from the books of banks. This will help banks to
free their funds for investing in other infrastructure projects. IIFCL can lend upto a maximum of
30% of the Total Project Cost. Disbursement in Takeout Finance is generally carried out one year
after the Commercial Operation Date (COD)105.
Credit Enhancement Scheme106: under this Scheme, IIFCL provides for partial credit guarantee to boost
the credit rating of bonds which are issued by companies to AA or higher for refinancing the
existing loans IIFCL undertakes credit enhancement of upto 20% of the Total Project Cost subject
to maximum 50% of the total Project Bonds. Credit enhancement helps to channelize long term
funds from insurance and pension funds into such bonds. Asian Development Bank is providing
guarantee to IIFCL of 50% of the underlying risk. IIFCL helps refinance the banks and other
financial institutions for their loans provided to infrastructure projects.
InvITs suffer from misplaced expectations:
Infrastructure investment trust (InvITs) have not been successful to create much excitement on the
stock exchange. Shares of Indian InvITs- IRB InvIT Fund and India Grid Trust, have not
performed upto the benchmark since their listing. InvITs are not the standard classic equity
instruments, returns are in the form of interest, dividends and buybacks. InvITs are hybrid
investment instruments. That’s also one of the reasons why this security has not caught the interest
of investors yet. Distribution per unit (DPU) is a major parameter to gauge if the companies are
delivering returns over and above the share prices. Within the existing regulatory framework, InvITs
are classified as an equity and thus the pool of capital they attract are from equity funds. Therefore,
the benchmarks are equity indices and hence compared to InvITs. In reality, InvITs resemble debt
more than equity and a mismatch happens when a fund which has a higher cost of capital invests in
a “debt like” instrument. Equity investors look to earn a higher return than what these “debt like”
instruments can deliver. If debt funds invest in InvITs, their post listing performance will be better
Conclusion:
106 'How Invits Or Infra Investment Trusts Can Make Money For You' (The Economic Times, 2019)
<https://economictimes.indiatimes.com/markets/stocks/news/how-invits-or-infra-investment-trusts-can-make-
money-for-you/articleshow/58838576.cms?from=mdr> accessed 6 March 2019.
31 | P a g e
As newer activities pick up, regulations around InvITs will evolve for catering the needs of the
capital markets. The nascent debt market in India requires regulations which allow flexibility to
borrow InvIT type structure. Also, regulators in India have to be mindful of the challenges and
needs that India centric financial market presents. The most important driving factor is a robust
regulatory regime which facilitates large scale transactions and relatively smaller deals.
From the perspective of business, advantages of the structure of InvIT is there for both demand and
supply side. From the demand side, there is business listing assets and therefore, the demand side
looks to raise capital. The supply side is mainly for the suppliers of money, which are usually the
investors that are looking to invest in assets.
The most important advantage for the demand side which is seeking capital is the ability to raise
funds by utilizing their assets which can be monetized without having to use the debt or equity
which could impact the business’ balance sheet. For the supplier of the same capital, advantage is the
ability to invest in certain assets which are easy to value and returns of the project which then
provides an opportunity to match their asset-liability. The real innovation, for businesses comes by
identifying segments which they wish to develop like telecom tower assets for monetizing segments
like consumer-facing business which they choose to show in their balance sheets because such
segments are more attractive from a Return on Invested Capital perspective.
32 | P a g e

Alternative Investment Schemes and Units in Infrastructure Projects

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Alternative Investment Schemes and Units in Infrastructure Projects

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Alternative Investment Schemes and

Units in Infrastructure Projects 1

Project SPV/ a Holdco:

Intermediaries which are involved in InvIT:

(a) Merchant Bankers:

cr/article25301923.ece> accessed 4 March 2019.

(b) Registrar to the Issue:

(d) Public Issue Banks:

(e) Escrow Bank:

(f) Credit Rating Agencies:

(g) Share Transfer Agents, Registered Brokers, Collecting Depository Participants:

(h) Advertising agency:

Process for registration of an InvIT17:

 Identification and appointment by the Sponsor of a Trustee

Mandatory listing requirement18:

Types of Unit offerings19:

Public offer of Units by InvIT21:

Private placement of Units by InvIT25:

Parties and Intermediaries to an InvIT:

Eligibilities to be a Sponsor are27:

Rights and duties of the Sponsor28:

26 Regulation 7 of Securities and Exchange Board of India (Intermediaries) Regulations, 2008

Duties, roles and responsibilities of Trustee30:

 Appointment and removal of Investment Manager and Project Manager

29 Regulation 19 of Securities and Exchange Board of India (Intermediaries) Regulations, 2008

Duties, roles and responsibilities of Investment Manager 33:

Duties, roles and responsibilities of Valuer 36:

Disclosure documents which are prescribed by SEBI40:

These documents are related to setting up of InvIT, allocation of responsibilities, transfer of

(ii) Investment Management Agreement44: Investment Management Agreement is entered

(2) Listing related Transactional Documents:

Process for Issue and Listing:

(1) Pre filing of Draft Offer Document52:

 Issue Agreement is executed

52 Schedule- A (2) of SEBI Guidelines for public issue of InvITs, 2016

 Registrar shall get electronic bids from Stock Exchange

(1) Pre-filing of Placement Memorandum58:

Investors and Investments:

(1) Debt Financing70:

<http://www.blog.sanasecurities.com/india-grid-invit-invest-not/> accessed 4 March 2019.

(2) Equity Financing:

Government Of India' (Financialservices.gov.in, 2019) <https://financialservices.gov.in/banking-divisions/Financial-

Economic Times, 2019) <https://economictimes.indiatimes.com/news/economy/policy/infrastructure-companies-need-

<http://www.blog.sanasecurities.com/india-grid-invit-invest-not/> accessed 4 March 2019.

What should can done:

Infrastructure Development Fund (IDF)-

Comparison of Debt Fund Structures between NBFCs and Mutual Funds:

Particulars Mutual Funds NBFCs

Functioning of IDF- Mutual Funds:

Functioning of IDF- NBFC:

<http://www.blog.sanasecurities.com/india-grid-invit-invest-not/> accessed 5 March 2019.

Economic Times, 2019) <https://economictimes.indiatimes.com/news/economy/policy/infrastructure-companies-need-

Masala Bonds- Low Risk High Potential:

<http://www.blog.sanasecurities.com/india-grid-invit-invest-not/> accessed 5 March 2019.

Comparing with Global Scenario:

InvIT- The Journey so Far:

Name of Company Assets to be transferred

cr/article25301923.ece> accessed 5 March 2019.

Government Of India' (Financialservices.gov.in, 2019) <https://financialservices.gov.in/banking-divisions/Financial-

Economic Times, 2019) <https://economictimes.indiatimes.com/news/economy/policy/infrastructure-companies-need-

Challenges for Issuers of InvIT:

Pension Fund Industry:

Challenges Faced by Pension Funds:

Projects and Segments which are suitable for Financing Products: