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NHAI plans to monetise its highways through InvITs

Topics Covered: Investment models.

NHAI plans to monetise its highways through InvITs:


Context:

National Highways Authority of India (NHAI) is preparing to come up with its InvIT issue.

  • It had received approval from the Union Cabinet in this regard in December 2019.

What are Infrastructure investment trusts (InvITs)?

They are institutions similar to mutual funds, which pool investment from various categories of investors and invest them into completed and revenue-generating infrastructure projects, thereby creating returns for the investor.

They are regulated under the Sebi (Infrastructure Investment Trusts) Regulations, 2014 and the Indian Trust Act, 1882.

Structure of InvITs:

They have a trustee, sponsor(s), investment manager and project manager.

  • Trustee (certified by Sebi) has the responsibility of inspecting the performance of an InvIT.
  • Sponsor(s) are promoters of the company that set up the InvIT.
  • Investment manager is entrusted with the task of supervising the assets and investments of the InvIT.
  • Project manager is responsible for the execution of the project.

How does it benefit the investor?

  • InvITs enable investors to buy a small portion of the units being sold by the fund depending upon their risk appetite.
  • Given that such trusts comprise largely of completed and operational projects with positive cash flow, the risks are somewhat contained.
  • Unitholders also benefit from favourable tax norms, including exemption on dividend income and no capital gains tax if units are held for more than three years.

How will it help NHAI?

The issue will enable NHAI to monetise its completed National Highways that have a toll collection track record of at least one year.

This will help the company raise funds for more road development across the country.

Sources: Indian Express.