Early days for InvITs

Infrastructure investment trusts have great potential, but as Vishal Yaduvanshi explains, changes are necessary

The Securities and Exchange Board of India (SEBI) introduced infrastructure investment trusts (InvITs) with the notification of the SEBI (Infrastructure Investment Trusts) Regulations, 2014 (InvIT Regulations). Distinct from real estate investment trusts, InvITs are intended to provide investment opportunities in liquid and transparent vehicles, as well as a suitable structure for financing and refinancing infrastructure projects.

Using investment trusts for fundraising comes with certain inherent benefits for sponsors and investors. These include increased liquidity due to the packaging of assets as listed securities, access to a diversified investment portfolio and increased transparency. However, market reception of InvITs has been lukewarm so far, and there have been no significant deals. This can largely be attributed to the slow pace of change to other existing laws (such as those for foreign investment), which would enable the setting up and investment in InvITs, and a lack of clarity on their taxation.

Key considerations

The government and regulatory authorities are aware of not having provided a suitable framework for the success of InvITs and have taken some steps to rectify this. For example, the government clarified various aspects of the taxation of trusts as part of Finance Act, 2015, and the Reserve Bank of India recently amended regulations to permit foreign investment in such vehicles. However, the following concerns weigh on investors’ minds.