Infrastructure investment trust or InvIT is the new buzzword for money managers and infra companies. IRB Infra and Sterlite Power Grid's Indian Grid Trust are all set to sell InvITs.
IRB InvIT (Infrastructure Investment Trust) Fund, sponsored by IRB Infrastructure Developers, will launch its initial public offering (IPO) on May 3.
The issue would be available for subscription till May 5.
The IPO consists of a fresh issue aggregating up to Rs 4,300 crore and an offer for sale of up to 34,761,770 units by IRB Infrastructure Developers, Modern Road Makers, Aryan Toll Road, ATR Infrastructure and Ideal Road Builders.
The issue is being made through the book building process and in compliance with the InvIT regulation.
Around not more than 75% of the issue shall be available for allocation on a proportionate basis to institutional bidders, IRB said.
The investment manager and the selling unit holders, may, in consultation with the GCBRLMs (Global Co-ordinators and Book Running Lead Managers) and the BRLM (Book Running Lead Managers) allocate up to 60% of the institutional bidder category to anchor investors and strategic investors.
This is on a discretionary basis in accordance with the InvIT regulations.
Further, not less than 25% of the issue shall be available for allocation on a proportionate basis to other bidders, in accordance with the InvIT regulations, subject to valid bids being received at or above the issue price.
In case of under-subscription in any category, the unsubscribed portion in either category may be allotted to bidders in the other category at the discretion of the investment manager, in consultation with the GCBRLMs, the BRLM and the designated stock exchange.
As per InvIT regulation sponsor will hold 15% units for the initial three years.
What is InvIT?- InvIT is like a mutual fund a collective investment framework.
- The sponsor is usually an infrastructure company which sets up a trust.
- The trust raises capital by issuing units and uses that cash to buy a bunch of the sponsor’s projects which are already generating cash.
- The units are typically purchased by pension funds, insurance companies and sovereign funds.
- These funds are paid from the revenues generated by the infra projects. Under Indian rules, the sponsor has to retain 15 percent of the units for at least 3 years.
- Thus the InvIT helps an infra company sell-off a part of its completed projects to new investors and secure funds for new projects. In a way, InvITs replace banks as funders for infra projects.
InvIT versus REITs- InvITs are like real estate investment trusts (REITs) - in that the REITs are backed by rent-generating real estate assets and InvITs by cash generating infra projects like roads or power grids or even power projects.
- However, InvITs are different because the returns depend on both growth and on inflation.
- Besides the sponsor and the trust, the InvIT has a project manager who manages the under construction projects and operates the completed assets.
- The InvIT also has an investment manager who makes investment decisions related to the InvIT and oversees the project manager.
