The first-of-its kind Infrastructure Investment Trust Fund (InvIT) issue of IRB opens for subscription on May 3 and ends on May 5, 2017. So, what is InvIT Fund and is it worth the investment? Here is a take on this:
What is an InvIT?
InvITs is a new investment instrument and a fund raising tool for the infrastructure developers. Investors can directly invest in small amounts in revenue-generating real estate projects that also go well with the ongoing cash requirements of developers. The move will help developers meet their project completion deadlines who otherwise falter attributing funding concerns. And for the investment made, you as an investor get a part of cash flows. Experts opine that the instrument is also likely to reduce funding pressure on the banking system.
Details of the Issue:
With the IRB InvIT Fund issue, the company aims to garner a total funding of Rs. 4650 crore. Price band for the issue is fixed at Rs. 100- Rs. 102 per unit. The minimum application could be made for 10,000 units i.e. a minimum of Rs. 10 lakh. Post that investment in multiples of 5000 units can be made. The units will be listed on the bourses to provide liquidity to the unitholders.
Scheduled commercial banks, infrastructure finance company registered as an NBFC with RBI, mutual funds, HNIs, international multilateral financial institutions, family's trust not falling under the ambit of institutional investors and FPIs qualify to make investment in the IRB InvIT Trust Fund.
In accordance with the regulations laid under InvIT, sponsor of the InvIT fund which in the case is IRB will retain 15% units for the first three years. Institutional investors will secure units not over 75% of the total issue size. Managers to the issue include ICICI securities, IDFC Bank, Credit Suisse and IIFL. So, the new fund by the Infrastructure trust is not for retail investors.
Also, in the IPO, IRB is considering an OFS or offer for sale of a maximum of Rs.355 crore.
Positives for IRB InvIT Fund investment: IRB InvIT Trust includes 6 ongoing road projects totalling to 3645 kms across 5 states in India. On completion of the project, IRB will gain 100% title to 6 project SPVs. These operational road projects are generating returns at a CAGR of over 11%.
With a good credit rating of CARE (AAA) Stable by CARE and IND AAA Outlook Stable by India Ratings, the new trust fund could be a good bet.
Most of the cash flow i.e. 90% will be provided to unit holders as dividend which is tax free in the hands of investors.
Brokers' call on the issue: As suggested by ICICI Securities, some of the project SUVs reeled in losses in previous years and any likely loss in the future would weigh heavily on the business. IIFL, another brokerage firm, highlighted that highways or toll roads charge toll after adjusting for inflation and commence their operations only upon receiving concession by NHAI.
The issue will get listed within 12 days of the closure of initial offer on both the NSE and BSE.