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Registration of Infrastructure Investment Fund

An Infrastructure Investment Trust (InvIT) is a collective investment scheme, similar to a mutual fund, that allows individual and institutional investors to invest directly in infrastructure projects in exchange for a small percentage of the income as a

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Introduction

The registration of Infrastructure Investment Trusts (InvITs) in accordance with the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 is the subject of this article.

What exactly are Infrastructure Investment Trusts (IITs):

An Infrastructure Investment Trust (InvIT) is a collective investment scheme, similar to a mutual fund, that allows individual and institutional investors to invest directly in infrastructure projects in exchange for a small percentage of the income as a return.

The Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 (SEBI InvITs Regulations), issued by the Securities and Exchange Board of India, regulates InvITs (SEBI).

In its circular CIR/IMD/DF/55/2016 dated May 11, 2016, SEBI also gave thorough rules for the public issue of units of InvITs.

The fundamental goal of InvITs is to boost India's infrastructure sector by encouraging more people to participate in it, and they may be adjusted to fit any situation. Typically, such a mechanism is used to pool money from a number of individuals and invest it in income-producing assets. The resulting cash flow is paid to investors as dividend income. The form and functioning of both are relatively similar when compared to Real Estate Investment Trusts, or REITs.

InvIT's constituent(s):

The four components of an InvIT are as follows:

a. Trustee

b. Sponsor

c. Investment Management

d. Project Manager

Trustee: According to the SEBI InvITs Regulations, a trustee is a person who maintains the InvIT assets in trust for the benefit of the unitholders. They must also put at least 80% of their money into revenue-generating infrastructure assets.

Sponsor: A sponsor is typically a body corporate, LLP, promoter, or a corporation with a net worth of at least Rs. 100 crore. They must also hold at least 15% of the total InvITs with a 3-year minimum lock-in duration or as required by regulatory requirements. Sponsors are used as a Special Purpose Vehicle in public-private partnership (PPP) initiatives (SPV).

Project Manager refers to a business, LLP, or other legal entity that has been designated as the InvIT's project manager and is responsible for the project's implementation. In the case of PPP projects, the project manager is the body in charge of ensuring that the concession agreement or any other relevant project document is followed and that project milestones are met.

Investment manager: An investment manager oversees all operational activities around InvITs as a body corporate of an LLP.

InvITs must be registered

An InvIT can be registered with the SEBI by an application submitted on behalf of the trust by the sponsor. Under the SEBI InvITs Regulations, no one can act as an InvIT unless they have secured a certificate of registration from the SEBI.

The trust's sponsor might apply to SEBI for a certificate of registration as an InvIT in Form-A on behalf of the trust.

SEBI has the authority to issue a certificate of registration after taking into account the requirements outlined in the SEBI InvITs Regulations.

SEBI may designate anyone to take care of the trust's records and papers if necessary to protect investors' interests. The SEBI will also decide the terms and conditions of such an appointment for the purposes stated above.

The key data required in Form-A, Application for Grant of Certificate of Registration as Infrastructure Investment Trust, are as follows:

1. Basic information

2. Trust detail

3. Trustees detail

4. Sponsor’s detail

5. Investment manager detail

6. Project manager’s detail

7. business plan & investment strategy detail

8. past regulatory actions detail

9. other information/declaration

Furnishing further information:

SEBI may require the applicant to provide any information or clarifications it requires in order to process the application.

The SEBI may summon the applicant or its authorised representative(s) for personal representation in connection with the certificate grant if it so desires.

Certificates are awarded

SEBI will notify the applicant after it has determined that the applicant meets the standards set forth in the SEBI InvITs Regulations. Following receipt of registration fees, a certificate of registration in Form-B will be issued.

Structure of Infrastructure investment trust

Elements

Roles

Trustees

Invest a minimum of 80% in infra assets

Sponser/s

Hold 15% of total InvITs

Investment manger

Manages investment and supervises operational activities concerning InvIT.

Project manager

Executes projects.

Purpose of InvITs

InvITs are designed to help Infrastructure Companies repay their loan obligations promptly and efficiently. Because infrastructure projects take time to generate significant cash flow, InvITs are useful for paying down loan interest and other obligations quickly.

Benefit of InvITs

 

1. Diversification

Individuals can diversify their investment portfolio by investing in invITs with diverse assets. Such a feature directly reduces associated risks while also allowing investors to produce consistent long-term returns.

2. Obtains a steady income

Redistribution of risks and accrual of a fixed income is a powerful strategy for earning fixed income, especially for retirees. Incorporating such an investment tool would also benefit those who want to plan their retirement effectively.

3. Liquidity

In general, infrastructure investment trusts are simple to enter and exit, which improves their liquidity. Small investors, on the other hand, may find it difficult to sell a high-valued property quickly.

4. Asset management of high quality

InvITs give investors the option of having their assets professionally managed. It not only enables good resource management and distribution, but it also helps to prevent holdings fragmentation.

The ideas below, however, can help you comprehend how different aspects benefit from an infrastructure investment trust.

5. Investors

Investing in this option lets investors to earn a set rate of return on their money. An infrastructure investment trust, for example, is required to transfer 90% of its total net cash flow to its investors. It indicates that investors can expect consistent returns over the course of their investment. Additionally, if the InvITs have excess cash flow, investors earn dividend income on their investment.

6. Promoters

Promoters could drastically reduce their debt burden by investing in InvITs and selling assets.

Difference between REITS and InvITs

 

REITS

InvITs

Structure

REITs are real estate investment trusts that invest in completed and under-construction developments. They must ensure that at least 80% of the assets are placed in finished, income-producing properties.

InvITs, on the other hand, invest in infrastructure projects such as roads, power plants, highways, warehouses, and other similar structures.

 

They must make certain that at least 80% of their assets are invested in finished and revenue-generating infrastructure projects (s). Furthermore, they are prohibited from investing more than 20% of their assets in other suitable investments.

Stability & Revenue generation

REITs are real estate investment trusts that make money by leasing, renting, or selling their properties. They must invest at least 80% of their investable assets in developed and income-generating properties, according to SEBI.

InvITs own operational and income-generating infrastructure assets such as gas pipelines, highways, and power transmission lines. Long-term contracts with strong parties ensure a continuous stream of revenue for these trusts.

Liquidity

While both REITs and InvITs are listed on the stock exchange, REITs have a higher liquidity than InvITs due to their lower unit price. In addition, because real estate is more familiar to retail investors than infrastructure, it is a more appealing option.

Growth

A REIT's growth is visible to investors because the corporation will remodel existing properties, begin new construction, or acquire new assets. On the other hand, an InvIT's growth can only be determined by looking at its books because it is determined by how the firm acquires concession properties through a bidding procedure.

FAQs

1. What exactly is INVITS?

An Infrastructure Investment Trust (InvIT) is similar to a mutual fund in that it allows individual and institutional investors to invest directly in infrastructure projects and get a piece of the revenue as a return. The InvIT is set up in a tiered structure, with the Sponsor establishing the InvIT, which then invests directly or through special purpose companies in qualified infrastructure projects (SPV). The SEBI (Infrastructure Investment Trusts) Regulations, 2014 govern InvITs.

2. What is the procedure for becoming a registered InvIT?

Under the SEBI (Infrastructure Investment Trusts) Regulations 2014, no one may function as an InvIT unless they have secured a certificate of registration from the Board. The sponsor on behalf of the trust must submit an application for a certificate of registration as an InvIT in Form A as stated in Schedule I of the SEBI (Infrastructure Investment Trusts) Regulations 2014, together with a non-refundable application fee as provided in Schedule II. When the Board is satisfied that the applicant meets the requirements, it will notify the applicant, and upon receipt of the registration fees as indicated in Schedule II, it will issue a certificate of registration in Form B under Schedule I.

3. What are the most important requirements for Sponsor(s) qualification?

Any company, LLP, or other legal entity that establishes the InvIT is referred to as a "sponsor." If the sponsor is a body corporate or corporation, it must have a net worth of at least US$15.38 million; if it is an LLP, it must have net tangible assets worth at least US$15.38 million. On a post-issue basis, the sponsor(s) must hold not less than 15% of total InvIT units for a period of at least 3 years from the date of listing, subject to the following: a) Sponsors would be liable to the InvIT for all acts, omissions, and representations/covenants made to the InvIT; b) Unless unitholders choose a suitable replacement, the project manager will be the sponsor/associate of the sponsor for a minimum of three years. This condition does not apply, however, if the sponsors keep a minimum of 25% post-issue share for at least 3 years from the date of listing. c) Each sponsor must have at least 5 years of experience in the infrastructure industry, and if the sponsor is a developer, at least two of the sponsor's projects must be completed.

4. What are the disclosure requirements for infrastructure Investment Trusts?

The following are the disclosure requirements for an Infrastructure Investment Trust (InvIT): In line with sub-section (4), section (15), Chapter IV, and any circular issued by the Board in this regard, disclosure in the placement memorandum for privately-placed InvIT. Schedule III and any circular issued by the Board in this regard must be disclosed in the offer document for publicly-offered InvITs.

5. What are the terms and circumstances for issuing and allocating units in InvITs?

• An InvIT may not make an initial offer of its units unless it is:

• registered with the Board under these regulations;

• has assets worth at least INR 500 crores; and

• has an offer size of at least INR 250 crores.

• Minimum offer size slabs and public float slabs:

• If the post-issue capital is less than INR 1600 crores, a minimum of 25% of the InvIT's total outstanding units or INR 250 crores, whichever is larger, is required.

• Minimum INR 400 crores if post-issue capital is equal to or greater than INR 1600 crores but less than INR 4000 crores.

• If the post-issue capital is greater than INR 4,000 crores: a minimum of 10% of the InvIT's total outstanding units

• Any units offered to a sponsor, manager, or their associated parties or affiliates are not counted toward the units available to the general public.

• The public float must be increased to a minimum of 25% within three years of the date of listing in all situations.

• An investor's minimum investment in a privately placed InvIT should be INR 1 crore. However, if such an InvIT invests or offers to invest 80% or more of the value of the InvIT assets, an investor's minimum contribution must be INR 25 crore.

• In the case of a public InvIT, the minimum initial and follow-on subscription from an investor will be INR 10 lakh.

As stated in the offer contract, up to 10% of the money raised by InvIT through a public offering of units can be utilised for "general purposes." Expenses relating to the issue will not be included in the general purpose budget.

• A minimum subscription quantity of 90% of the fresh issue size mentioned in the offer document is required.

• If an InvIT fails to make a public or private offering of its units within three years of its registration with the Board, it must relinquish its certificate of registration to the Board and cease to operate as an InvIT.

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