All You Need To Know About IRB InvIT Fund

IRB InvIT became the first Indian Infrastructure Investment Trust (InvITs) to hit the market on May 3.

But, what is an InvIT? An infrastructure investment trust helps sponsors raise money from investors and use the sum to complete their ongoing projects. The money can also be used to repay debts. An InvIT issues offers to investors against revenue-generating assets that must be generating revenues for at least a year. After buying an issue, one can directly invest in the project and earn a portion of the net distributable cash as returns.

The IRB trust, for instance, will own, operate and maintain six toll-road assets spread across Gujarat, Karnataka, Maharashtra, Rajasthan and Tamil Nadu. The projects include the Bharuch–Surat and the Surat–Dahisar stretches of the National Highway (NH)-8, the Jaipur–Deoli stretch of the NH-12, the Tumkur–Chitradurga stretch of the NH-4, the Omalur–Salem–Namakkal stretch at the NH-7 and the Talegaon–Amravati stretch at the NH-6.

It is worth mentioning here that InvITs have failed to attract developers after markets watchdog Securities and Exchange Board of Indian (Sebi) notified the norms in September 2014. It is only after certain changes of rules and easing of norms that the developers have started showing an interest into the revenue-generating tool. Reportedly, many other big companies are waiting for the Sebi approval to launch their InvITs.

Company profile

IRB Infrastructure Developers is noted among the largest infrastructure development companies in India. As of December 2016, the company has 16 road projects, of which eight are operational, five are under construction and three are under development.

The IRB offer

The offering comprises a fresh issue of units to raise Rs 4,300 crore and an offer for sale of 34.76 million units by existing unit holders in the trust.

Eyes on the prize

The company expects to raise Rs 5,033 crore through the public offering. Of the proceeds, Rs 3,300 crore will be used to repay debts.

No guarantee on returns

The trust will offer 12 per cent internal rate of return to investors. However, Group CFO Anil Yadav told media being an equity instrument, the issue does not guarantee returns.

"This is yield which is coming out of the derived assumption that 9.5 per cent growth. If the growth is higher, the yield will be higher, and, in a worst-case scenario, if growth is not up to the mark, the yield will also deteriorate," Yadav told The Economic Times.

A weak start

On the first day, the initial public offering was subscribed only seven per cent. Of the 250.99 million units, bids were made for 16.61 million. The issue offer closes on May 5.

The solid support

A day before launching the issue, the trust raised Rs 2,094.46 crore through the sale of units to anchor investors by allotting 205.34 million units to 28 institutional investors at Rs 102 apiece. As a rule, book subscription for anchor investors opens a day before the launch of an IPO. Among the investors that bought shares include global heavyweights such as Singapore-based sovereign wealth fund GIC, Monetary Authority of Singapore, Singapore's Schroder Investment Management, UK's National Westminster Bank and Australia's Platinum Asset Management. Among the local investors were Birla Sun Life Mutual Fund, HDFC Standard Life Insurance and Birla Sun Life Insurance. The support of angel investors, who accept a one-month lock-in period for a sizeable allocation of securities, indicates a strong backing for the trust and is likely to send across a positive message among investors.

Who is the offer meant for?

The issue offer is not meant for retail investors. To begin with, the minimum bid size is 10,000 units and in multiples of 5,000 units thereafter, at the price band Rs 100-102. Even at lower end of the band, this amounts to a minimum investment of Rs 10 lakh. Second and more importantly, the brand new investment mode might have to be tested in the Indian markets before retail investors are allowed to participate. While qualified institutional investors will be allotted up to 75 per cent of the units, non-institutional investors, which include companies and high net-worth individuals, must be allotted at least 25 per cent.