Infrastructure financing to evolve with new initiatives

Infrastructure financing to evolve with new initiatives

What are the latest sanctions and disbursements by Shrem? The total sanctioned debt is INR 74.50 million, out of which INR 49.34 million was disbursed till 30th November 2022. The remaining debt will be disbursed as and when we require the remaining six special purpose vehicles (SPVs)....

What are the latest sanctions and disbursements by Shrem? The total sanctioned debt is INR 74.50 million, out of which INR 49.34 million was disbursed till 30th November 2022. The remaining debt will be disbursed as and when we require the remaining six special purpose vehicles (SPVs). Which sectors are the current priorities for Shrem? Shrem will keep its focus solely on the roads and highway sector, within which it will be committed to annuity-based projects only. There are many factors associated behind this notion. One of the prime reason being the healthy awarding activity during the last few years and estimated to be maintained going forward. Consistent increase in budgetary allocation in the roads and highways sector is another factor. There is a significant focus on HAM as a mode of awarding projects and there is a healthy market size of HAM projects. There is an exhibition of strong fundamentals, secular growth trends and stable regulations in the roads sector with growing urbanisation and rising personal disposable income. And finally, the roads sector has a significant share in the government’s infrastructure development pipeline and national monetisation pipeline. Are there any gaps in infrastructure financing that can be filled to make it more efficient? India has a substantial infrastructure financing gap which has been a major challenge in the country's efforts to develop and maintain its infrastructure. There are several reasons that have caused this gap. The Indian Government has limited resources and is unable to finance all its infrastructure projects. Private sector participation in infrastructure financing has been limited in India due to a variety of factors such as high risks, long gestation periods and regulatory challenges. Infrastructure projects typically require long-term financing, but India has a shortage of long-term funding sources. To address these challenges, the Indian government has taken several measures such as increasing the role of PPPs, encouraging private sector participation and developing new financing mechanisms such as Infrastructure Investment Trusts (InvITs) and Infrastructure Debt Funds (IDFs). What recent developments have been witnessed with InvITs? The Finance Act, 2020 added section 10 (23FE) of the Income-tax Act, 1961 to provide an exemption to wholly owned subsidiaries of Abu Dhabi Investment Authority (ADIA), sovereign wealth funds (SWF) and pension funds (PF) on their income like dividends, interest and long-term capital gains arising from investments made in Indian infrastructure during the period between 01 April 2020 and 31 March 2024, subject to fulfillment of certain conditions. Considering the time taken for the listing of units of privately placed InvITs in the recent past, it was decided by SEBI to reduce the timeline to six working days as opposed to the existing thirty working days after the closure of the issue. Further, the capital markets regulator (SEBI) said that REITs and InvITs having a net worth of at least INR 1 million may issue listed commercial papers. How do you maintain low benchmark rates and lead in cost competitiveness as compared to others in the lending business? Shrem InvIT is different from many other listed InvITs due to various reasons. Approximately 80 per cent of its revenue is in the form of annuities i.e., fixed periodic payments. This will further increase to around 90 per cent post-addition of 10 new HAM assets which are under acquisition (4 already completed). Diverse revenue mix from HAM (16 assets, including 6 new assets under acquisition), toll, annuity, and toll+annuity projects are thoroughly considered. There is a seamless cash flow throughout the year with approximately 64 annual annuity payments. Fixed-price O&M contracts are in place with their O&M contractors for the entire life of all the assets. Being a financial investor, InvIT acquires only completed revenue-generating assets. Therefore, InvITs do not carry construction risks. All portfolio assets are acquired and will be acquired post independent due diligence, and independent board approval. Hence, the risk of acquisition of a non-profitable business is highly unlikely. Do you think focusing on HAM projects will give fruitful returns? HAM asset classes provide steady returns with very minimal variability in the revenue stream. If we manage the expenses more efficiently, then the returns generated from HAM assets will be superior and more predictable. One of the incomes under HAM assets is interest on balance completion cost, where the interest rate is linked to RBI Bank Rate/1 Year MCLR of the top five scheduled banks. The income earned under HAM assets is always more than the cost of debt on external debts providing a natural hedge to investors. Any movement in interest rates will have a positive impact on the HAM asset class and this is the only asset class that provides this kind of hedge against interest rate risk. When and how did you realize the potential of investing in InvIT? InvITs provide matured and stable assets. It aims to optimise matured operations, and hence, render safer investment options to investors looking to invest in direct infra stocks. InvIT offers diversification in a new asset class to gain exposure to India’s booming infrastructure sector. There are three-in-one returns, viz. capital gains, dividends and interest. InvITs provide faster capital returns as compared to other investment options in similar industries. By understanding these traits, it becomes imperative for any investor to act on it and try to optimise the competitive advantage as compared to other investment options available in financial markets. Belonging to the same industry of developing and maintaining real estate and infrastructure projects, we are aware of the time frame it requires for an investor to realize returns on the investment and understand the return options that were being offered by InvITs. We felt this was a beneficial option and initiated the actions required for the formation and launch of an InvIT by 2020. However, the launch of Shrem InvIT was delayed to 2021 owing to the unfortunate hit of the COVID-19 pandemic. How long it will take for India to achieve true progress and compete globally when it comes to investing in InvITs? In terms of returns, we are already beating global market returns. Indian InvIT asset class has been giving better returns as compared to global markets. Considering the policy adopted by the Indian government for enhancing and building infrastructure in India, we believe that India is and will be the preferred investment by all global investors in at least the next 10-12 years. How do you envision the future of infrastructure financing? Infrastructure financing will continue to evolve in India with the introduction of new initiatives like InvIT and the beginning of institutions like NIIF and NaBFID. This will help in raising investments from both institutional investors and retail investors. I strongly believe that if Indian retail investors invest a nominal portion of their savings in InvITs, the requirement of foreign capital in this sector will reduce drastically leading to true Atmanirbhar Bharat for the capital requirement for the infrastructure sector.

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