InvITs, REITs Can Raise Rs 8 Lakh Cr for India’s Infra Build-Out

Infrastructure investment trusts (InvITs) and real estate investment trusts (REITs) can potentially raise up to Rs 8 lakh crore of capital for India’s infrastructure build-out over the next five fiscals, according to CRISIL Ratings.
BY Realty Plus
Published - Monday, 01 Feb, 2021

Infrastructure investment trusts (InvITs) and real estate investment trusts (REITs) can potentially raise up to Rs 8 lakh crore of capital for India’s infrastructure build-out over the next five fiscals, according to CRISIL Ratings. A deeper debt market where investors can discern risks and returns across infrastructure asset classes, and stable regulations will be critical to achieving this goal. A government task force has estimated that Rs 111 lakh crore of investments are required in infrastructure through fiscal 2025 – or twice what was spent in the past five fiscals. This cannot be met by the government and traditional infrastructure-financing channels alone. Thus, alternative channels need to be pressed into service. InvITs and REITs can play a significant role here, according to the agency. Their combined assets under management (AUM) have logged 42% compound annual growth rate (CAGR) since the launch of the first InvIT in fiscal 2018 to about Rs 2 lakh crore now. Currently, there are 11 InvITs and REITs in India. Credit ratings on ten of these demonstrate the highest safety level (AAA) for three reasons: low debt, combined debt-to-AUM ratio of less than 35%, and over 90% of AUM deployed in operational assets. Lower leverage in most situations is driven by regulations, but this is set to change. Recent rules afford setting up of an unlisted private InvIT sans any cap on leverage or ratings, or curbs on investments in operational assets. While this could raise credit risks by some extent, it may still support holistic market development. Such InvITs are increasingly generating investor interest given the flexibilities offered and the opportunity to balance the interests of lenders and investors. As the market expands and regulations open up, the landscape will change, necessitating sharper differentiation in the credit and operating risks of InvITs and REITs.