How InvITs in India have performed since making their debut over five years ago

Earlier this month, Edelweiss Real Assets Managers Ltd, part of Edelweiss Alternatives, closed the AnZen India Energy Yield Plus Trust, its maiden energy infrastructure investment trust (InvIT), with initial assets under management of more than Rs 2,300 crore. 

AnZen, which will invest in a diversified portfolio of assets including transmission lines and renewable energy projects, is backed by a diversified set of institutional and other investors who will hold 26% units in the InvIT. 

This is the latest trust among more than a dozen InvITs that India has seen over the last five years since the investment vehicle was first introduced to local investors.  

The first InvIT was registered in India in April 2017 as a new investment avenue, open mostly to high-net-worth individuals (HNIs) and institutional investors. 

Over the last five years, the market regulator Securities and Exchange Board of India (SEBI) has registered about 15 InvITs so far, of which seven are listed on the country’s stock exchanges.   

InvITs — Explained

InvITs are essentially investment instruments for the infrastructure sector that work somewhat like mutual funds and are regulated by SEBI. 

An InvIT consists of four elements—a trustee, one or more sponsors, an investment manager, and a project manager. The trustee inspects the performance of the InvIT, while sponsors promote the entity. The investment manager is an organisation or a limited liability partnership that supervises the InvIT. The project manager executes the project that is owned by the InvIT.  

Investors in an InvIT effectively become part owners of operating assets that could include anything from tolled highways to power transmission lines to any other infrastructure asset that generates an annuity return. 

Promoters of InvITs use these instruments to monetise operational assets that have a long income generating life. Even the government has been taking the InvIT route to monetise assets and broaden their ownership base. 

These vehicles, therefore, offer a sort of in-between way among stocks, bonds and mutual funds. 

InvITs — Performance check

So, over the last five years how well have InvITs actually done in India? 

The answer to this question is rather complex and, frankly, there may be no straight answer at all. 

The success of an InvIT would have to be defined by the sort of returns they may have generated for their investors over the course of their existence. 

InvITs typically generate returns from the assets they own in three ways. One, by owning assets on their own balance sheets. These earnings could include toll collections, power transmission fees and such like. 

Second, InvITs own assets in special purpose vehicles (SPVs) which may pay them dividends. 

Third, an InvIT may lend money to an SPV, which will, in turn, own assets, and pay the InvIT interest on the loan. 

The returns that an InvIT generates for its shareholders can take all three forms. SEBI mandates that 90% of the InvIT’s income needs to be distributed to its unit holders every year.  

To gauge their performance, we considered the seven InvITs that are currently listed as data on the unlisted ones is hard to come by. We further whittled this list down to just five, as data on the others was incomplete or simply unavailable as they are not as actively traded on the exchanges as the others.  

These five InvITs are the National Highways Infra Trust, PowerGrid Infrastructure Investment Trust, IRB InvIT Fund, India Grid Trust and the India Infrastructure Trust. 

While two of the five are sponsored by government entities—the National Highways Authority of India (NHAI) and transmission major Power Grid Corp of India Ltd (PGCIL--the others are backed by private-sector infrastructure companies and private equity firms. 

In value terms, PowerGrid Infrastructure Investment Trust is the biggest with a market cap of Rs 11,557 crore, followed by KKR & Co-sponsored India Grid Trust, which is valued at just under Rs 9,600 crore.

The National Highways Infrastructure Trust and the India Infrastructure Trust, which is backed by Brookfield Asset Management and Canada Pension Plan Investment Board, are ranked third and fourth, respectively. IRB Infrastructure Developers Ltd-backed IRB InvIT Fund is the smallest. 

To be sure, these five InvITs were listed at different points in time and hold different types of assets, so a like-to-like comparison may not entirely be possible or even justified. 

Having said that, if one looks at the prices at which these InvITs were listed and where they are trading right now, two of the five—IRB InvIT and India Infrastructure Trust are trading below where they had listed. 

IRB InvIT was listed as far back as May 2017, while India Infrastructure Trust is of a much later vintage, and was listed in December last year. 

Had you invested into IRB InvIT when it went public back in 2017, you would be sitting on an absolute loss of more than 37%. Had you bet on India Infrastructure Trust when it listed in December last year, you would be at a loss of just over 5.6%.  

The other three InvITs though have made their investors richer, albeit by varying degrees. 

Had an investor bet on the government-backed National Highways Infra Trust when it listed in November last year, he or she would be sitting on an absolute gain of 6.8%. 

India Grid Trust, which listed back in 2017 almost around the same time as the IRB InvIT, has returned more than 45% over the last five years and some months. 

The best performing InvIT though seems to be PGCIL-backed Power Grid Infrastructure Investment Trust, which has yielded a neat 30% since it was listed just five months back.   

The real returns

But as mentioned above, the absolute returns generated by these InvITs are just one part of the story. If one also takes the dividend distributed into account, the picture begins to look slightly different. 

India Grid Trust, which holds power assets, has delivered annualised returns of 14% and total returns of 105%, while IRB InvIT has delivered 12.63% over the last one year.  

Most InvITs, both listed and unlisted, tend to offer stable annualised returns of between 8-10%. Little wonder then that these instruments have been gaining traction in India at least among wealthy investors. 

Having said that, the growth has been slow and in fits and starts. Over the last seven years only 15 InvITs have been registered with assets of around Rs 14 lakh crore under management. 

However, the government’s National Monetization Plan (NIP), which estimates aggregate monetisation potential of Rs 6.0 lakh crore through core assets of the Central Government, over a four-year period, from FY 2022 to FY 2025, could significantly up this number.  

An EY report from last year points to a much bigger opportunity ahead. It says that while InvITs and Real Estate Investment Trusts (REITs) have raised capital of over $4 billion in India, a funding requirement of over US$1.4 trillion by 2025 is estimated by the NIP.

“Early trends of performance are encouraging. The combined market-cap of the three listed REITs in India is over US$7 billion and over US$10 billion for InvITs,” the report noted. 

The report goes on the say that apart from the sectors for which InvITs have already been formed other potential sectors for which such vehicles could be formed, include airports, ports, railways and metro rail projects.