MEP Infrastructure Developers, Reliance Infrastructure, GMR Infrastructure, Sterlite Power Grid Venture, IL&FS Transportation Networks line up issues
At least half-a-dozen infrastructure companies have lined up Infrastructure Investment Trusts (InvIT) issues to get cheaper and long-term finance and better their ratings to bag newer projects.
The companies which have already filed a draft offer document with Securities and Exchange Board of India or are in the process include IRB Infrastructure Developers, MEP Infrastructure Developers, Reliance Infrastructure, GMR Infrastructure, Sterlite Power Grid Venture and IL&FS Transportation Networks.
On Tuesday, IRB InvIT Fund allotted 20.53 crore units at Rs 102 per share aggregating to around Rs 2094.50 crore to 28 anchor investors. The IRB issue for retail investors opens today and closes on Friday, making it the first company to come out with an InvIT.
InvITs are like mutual fund instruments that help infrastructure companies pass on debt to other investors at a lower cost and repay debt taken from banks.
Several existing infrastructure projects under development are delayed due to the financial stress involved.
"The burgeoning financial burden is due to varied reasons including locked-up equity of private investors, increasing debt finance costs, the inability of the firm in securing additional finance, project implementation delays, lack of international finance flowing to Indian infrastructure projects," said an analyst.
"InvIT predominantly helps infrastructure companies de-leverage their balance sheets in terms of debt size the company is having on its books. The InvIT regulations require 51% minimum de-leveraging of the total debt on the projects which are pulled under the InvIT structure. This also allows redeployment of fresh capital into newer projects, which enable the companies to bid and work on more number of projects than it is today," said Jayant Mhaiskar, vice chairman and managing director, MEP Infrastructure Developers.
MEP Infrastructure Developers, whose consolidated debt hovers around Rs 3,000 crore, is looking to raise Rs 1,200 crore to Rs 1,400 crore through the InvIT. In other words, almost half the debt is likely to be repaid which would improve its debt-equity ratio and help raise funds for newer projects.
The rating on those project would go up significantly once the infrastructure firm de-leverages the total debt, which would help in getting funding at a lower cost of yield.
The infrastructure industry, particularly the road sector, is financially stressed and getting fresh finance for new projects is becoming a challenge. This has also led the government in tweaking business model in awarding road projects; it has come up with hybrid annuity model to beat the lull in the sector. More focus is being given to engineering, procurement and construction projects to help the revival of the infrastructure companies.
"With Rs 1,700 crore of cash coming into IRB Infrastructure from the InvIT, the overall net debt to equity ratio will improve from 3:1 to 1.8:1. This will help in improving consolidated ratings and, in turn, help reduce the interest cost on other projects in the portfolio. The cash will be useful for the new projects," said Virendra Mhaiskar, chairman and managing director of IRB Infrastructure Developers.
Reliance Infrastructure too is planning to launch its IPO later this month to raise Rs 2,500 crore, with an option to retain 25% of the oversubscription. Sources said the resultant reduction in consolidated debt of Anil Ambani-led company will be in the range of Rs 3,200 crore to Rs 4,000 crore. "...the net proceeds will be infused in the project SPVs to replace part of the existing bank debt and sponsor subordinated debt," reads Reliance Infrastructure InvIT's draft offer document. Earlier, the plan was to have 10 of its 11 road projects under the InvIT, which has been brought down to seven.
As per Sebi rules on InvITs, every six months, a minimum of 90% of funds collected – after paying for expenses, taxes and repayment of external debt – should be given to the investors. Dividend income coming from InvIT will be exempted from income tax.
FIRST ISSUE TODAY
- IRB InvIT Fund allotted 20.53 crore units aggregating Rs 2094.50 crore to 28 anchor investors
- The IRB issue for retail investors opens today and would close on Friday
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