Just when people began to think that infrastructure companies could not possibly grow organically without further leveraging their balance sheets and diluting shareholders’ interest, we launched the country’s first infrastructure investment trust.
A game-changing initiative, our transfer of 6 Projects to the IRB InvIT Fund not only reduced our leverage but provided immediate access to investible cash flow that can be reinvested in new projects. Besides being a source of regular cash flows, the trust has a potential to act as a vehicle to which operational assets can be offered for unlocking tied-up capital.
What are InvITs
InvITs (Infrastructure Investment Trust) are trusts that manage income generating infrastructure assets, while offering individual investors a liquid method of directly investing in these assets by pooling sums of money. Investors are issued units against which they are typically offered regular yields with potential for future growth. It is a kind of fund-raising mechanism leveraged by infrastructure developers as an investment vehicle to monetise their infrastructure assets.
Why InvITs
- Facilitate infrastructure developers to monetise assets for reinvestments in new projects
- Investment in diversified portfolio of infrastructure assets reduces risks
- Attracts foreign capital into infrastructure sector
- Facilitates banks to reduce burden by freeing-up capital and reducing loan exposure, which in turn can be utilised for funding new requirements
- Facilitate higher standards of governance and transparency into infrastructure development and management and distribution of income from assets so as to attract investor interest
HOW IRB WILL BENEFIT
₹1,681Crs
Received as upfront cash consideration. This can be effectively utilised to fund existing projects and win new orders.
₹889Crs
Received as units in IRB InvIT Fund that shall provide regular cash flows in the form of quarterly distribution of returns to unit holders.
1.81:1
Net debt:equity position as on post asset transfer compared to 3:1 prior to that.
100-150bps
Expected savings in cost of debt driven by likely improvement in credit rating and re-rating of asset portfolio.
IRB InvIT FUND - CREATING A WIN-WIN SITUATION
Post registration of the InvIT from SEBI in September 2016, we successfully launched and listed it on the stock exchange in May 2017. As a result, six operational assets – the Bharuch-Surat section of NH-8, Surat-Dahisar section of NH-8, Tumkur-Chitradurga section of NH-4, Talegaon-Amravati section of NH-6, Jaipur-Deoli section of NH-12 and Omallur Salem-Namakkal section on NH-7 were transferred to the trust.
The InvITs facilitated in creating a win-win situation for the Company, its shareholders and the investors procuring units in the trusts.
With ₹1,681 Crs of funds available, a source of steady cash flows, expected decline in debt cost and reduction in leverage, the Company’s balance sheet has completely transformed. From tied-up capital to unlocking it, with an ability to raise more debt, it has opened up a gamut of opportunities by enhancing our financial pre-qualification criteria, ability to fund existing projects and win new orders. This will further enable the Company to improve its construction capacity from the current 300-400 kms annually to potentially 500-600 kms annually leading to increase in revenues.
HOW UNIT HOLDERS WILL BENEFIT
The trust will enable unit holders to invest funds in operating infrastructure assets which shall generate steady returns on the basis of cash flow from these assets. Besides, a likely increase in traffic flow and addition of more assets to the portfolio in the long-run would facilitate in enhancing returns to the unit holders and maximising their investments.
HOW IRB SHAREHOLDERS WILL BENEFIT
Though the transfer of assets resulted in a temporary moderation in cash flows in the short-run; in the longer run the Company with improved financials would be able to bid for new orders. Thus, with new projects, the construction revenues would increase and with more assets getting operational, the cash flows from toll revenues would also increase. Besides, new orders would provide more revenue visibility for the future. This will result in rising revenues which coupled with declining interest cost from deleveraging would enable us to maximise post-tax returns, grow net worth and maximise shareholders’ worth.
HOW THE NATION WILL BENEFIT
With the ability to take on new projects, we can contribute more by taking larger share in the country’s road construction pace which is critical to sustain its economic growth momentum.
InvITs - FACILITATING A SUSTAINABLE MODEL
We believe our new business model of offering operational assets to the trust and freeing up resources would be sustainable in the long term. While on one hand, we shall keep on offering stabilised income generating assets to the trust to maximise its revenues, realisation of value of investment with improved financials, we shall continue to expand our ability to bag more projects and grow our top line. Thus, making it a sustainable virtuous cycle of value creation.
Besides, our robust portfolio of under implementation income generating BOT (Toll) assets, fast execution speed and focus on primarily bidding for BOT (Toll) projects puts us in favourable position to ensure continuity of this business model. We shall continue to work around the areas of enhancing our operational efficiency to ensure faster turnaround.
InvITs-A MODERATE RISK & RETURN ASSET CLASS
IRB InvIT Fund being regulated by SEBI and having a robust set of guidelines makes it a relatively transparent investment asset with liquidity on the bourses. Besides it is floated by IRB and its management is governed by an experienced Board of Directors and professionals with proven capabilities.
