ask over, or infrastructure investment trusts, have been around since 2017, but many people may not be familiar with this investment route. InvITs raise funds by issuing units to investors and then invest that amount primarily in infrastructure assets. InvITs can own and operate operational infrastructure assets like highways, roads, pipelines, warehouses, power plants, etc.
In India, 18 are SEBI-registered ask over, Of these, only three InvITs are public and listed on stock exchanges: IndiGrid InvIT and PowerGrid InvIT invest in power transmission assets, while IRB InvIT invests in a portfolio of road assets to collect tolls during the entire concession period.
Yield from InvITs
Like REITs, InvITs have also been mandated by SEBI to distribute 90% of the net distributable cash flow earned to the unitholders. Checking the current distribution yield gives a fair picture of the expected return from your investment in InvITs. It is calculated by dividing the distributed earnings per year by the current market value. An investor can continue to earn a return at the time of investment if the cash flows and distributions for the company continue in future years.
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Is the cash flow from power transmission companies stable?
Indigrid Chief Investment Officer Meghna Pandit said the cash flow for power transmission InvITs in India is relatively stable as the revenue for these InvITs is dependent on the availability of transmission lines and not its usage.
On whether the default in payments by the debt-ridden discoms impacts the cash flow of the company, Pandit said that in inter-state transmission assets, the collection risk is comparatively minimal as payments are made through the PoC (Point of Contact) mechanism. Which means, the central unit which collects the money from the discoms and pays the power transmitters, distributes the default across all the transmitters.
What about other InvITs?
Sahil Kapoor, Senior Executive Vice President, IIFL Wealth said that the cash flow for InvITs as road projects for InvITs is dependent on various factors like underlying asset traffic load and availability of other roads for the same route. For instance, the cash flow of IRB InvIT was hit in the last few years due to the pandemic and this was reflected in the per unit distribution which had fallen over the years. FY19 to . 12.25 per unit in 8.5 more in FY 2011 9 in FY22.
IRB InvIT was also impacted by the fall in share price 56 Now From Its Listing Price 103.25 in 2017. Thus, the compound annual return from InvIT since its listing in 2017 has been only 0.7%, despite regular distribution of income to the unitholders. In such a situation, it is important to take care of the entry point.
What is the risk of capital loss?
Suppose an InvIT consists of a single power transmission line. It raises equity capital of 100 as on 1 January 2014 and generates cash flow 20 per year with effect from January 1, 2015, for a period of 10 years (up to 2024). The internal rate of return or IRR for this InVIT is 15%. In that year, the power line breaks down due to wear and tear, and InVIT’s contract for transmission is not renewed. Hence the value of the power line becomes zero. Thus, investors need to ensure that InvIT’s investment manager is adding new assets to their portfolio (check out the distribution growth).
Should you invest?
Investing in InvITs can help in making your portfolio more diversified. But pay attention to the risks and rewards. Unlike REITs, there is no capital appreciation on the current assets owned by InvITs and there is a risk of deterioration in the net asset value of the company.