Infrastructure facilities are required to support the quality of living of people and to ensure growth of the business enterprises. The world requires higher investments in roads, ports, power generation and distribution, and other various projects to support the future needs of humanity. As per recent studies by a global think tank group, the global infra structure requirements are as cited below: –
• Global Estimated spending in infrastructure during the coming two decades till 2040 is nearly $ 100 trillion.
• Annual demand for infrastructure is growing at $4 trillion and the supply is growing at $2.7 trillion annually leaving a deficit of $ 1.3 trillion PA.
• India’s infrastructure spending requirement till 2030 would be $ 4.5 trillion.
As per the study, Asia will lead in the requirement to invest in infrastructure facilities and India will be a major contributor to that. Presently global economies are not spending to the required levels to cater to the expected future requirements in infrastructure facilities. Major reasons for such huge infrastructure spending are: –
• Urbanization: – It is estimated that with in next 3 decades at least 70% of the global population will be living in urban centers with a minimum population of 100 million. They require quality infrastructure to support a decent living.
• Demographic changes: – Major upcoming economies will experience a peak population with higher working age group and a large section will be employed in services sectors. This will push the urbanization much faster.
• Growing global GDP: – The world economy is projected to grow at an average rate of over 3% per annum from 2011 to 2050, doubling in size by 2032 and nearly doubling again by 2050.
Countries around the world needs to spend more share of their annual GDP on infrastructure facilities. A major factor deciding Sustainable global development is the level of infrastructural facilities a city centers has and how many people it can afford. Global demographic changes and the spurt in urbanization induced by service sector’s exponential growth will create huge demand to build mega cities with a population equal to a small country. This requirement will be a huge financial burden on the public exchequer. The union & state govt. needs to formulate plans to devise strategies to attract large investments capital into infrastructure assets and bring in operational efficiencies to ensure sustainable growth. All the studies related to Infrastructure spending requirement and Global sustainable development shows the importance of federal policy changes and initiatives from emerging economies and concentrated efforts to create channel partnership with private players to bring in much needed investment capital to infrastructure assets. Presently over regulations and lack of global thinking is hindering the capital flow to the required assets. There is an urgent need to bring in private corporate expertise and experience into structuring financial instruments which has be protected by model standard agreements and independent dispute resolution mechanisms. An array of policy and regulatory changes will ask for a concentrated efforts from the Federal level.
Indian infrastructural investment efforts were so far in the nascent stages while considering the huge requirement the country has to cater. A billion plus population and nearly 65% of them are working age class will naturally request for huge infrastructure investments. GOI has in the recent past has announced a number of infrastructural investment initiatives. There were structural changes made in many institutions to address the service delivery gap, bring in tax consistency, having a single tax regime etc. All these were made after careful study and brainstorm to achieve the short-term objective of doubling of Indian economy to $5 Trillion by 2025. If the efforts are continuously monitored and capital is channelized into priority sectors and efficiency is brought in, the Indian economy will grow much faster than any best estimates.
National Infrastructure Pipeline (NIP)
Indian economy is expected to reach $14 trillion by 2040 and there will be a sharp increase in the infrastructure spending in the country. In the FY 2019-20 the GOI announced INR 100 trillion (revised to INR 111 trillion) infrastructure investment plan for the next five years from FY 2019-20. It was generally called as NIP.
a. Economy: – Well-planned NIP will enable more infrastructure projects, power business, create jobs, improve ease of living, and provide equitable access to infrastructure for all, thereby making growth more inclusive.
b. Government: – Well-developed infrastructure enhances level of economic activity, creates additional fiscal space by improving revenue base of the government, and ensures quality of expenditure focused on productive areas
c. Developers: – Provides better prepared projects, reduces aggressive bids/failure in project delivery, ensures enhanced access to sources of finance as a result of increased investor confidence
d. Banks/financial institutions/investors: – Builds investor confidence as identified projects are better prepared, exposures less likely to suffer stress given active project monitoring by competent authority, thereby ensuring better returns
To draw up the NIP, GOI has applied a bottom-up approach was adopted wherein all projects costing greater than Rs 100 crore per project under construction, proposed greenfield projects, brownfield projects and those at the conceptualisation stage were sought to be captured. The investment details of fiscal 2020 are estimates and those for fiscals 2021 to 2025 are projections.
NIP Estimated Project Sector Wise Spending & timelines (In INR Trillion)
(1 trillion equals 1 lakh Crore) FY20 FY21 FY22 FY23 FY24 FY25 No. Yearly Phasing FY20-FY25 % Of Spend
Power, Energy & PNG
Power 1.64 2.26 2.22 2.23 2.25 2.11 1.39 14.10 13%
Energy 0.42 1.72 1.72 2.03 2.50 2.45 – 10.85 10%
Petroleum And Natural Gas 0.27 0.44 0.48 0.42 0.23 0.11 0.00 1.95 2%
Transport Connectivity & Urban infra.
Roads 3.33 3.83 3.57 2.53 2.41 3.33 1.35 20.34 18%
Railways 1.33 2.62 3.09 2.74 2.21 1.68 – 13.68 12%
Ports 0.13 0.18 0.21 0.16 0.08 0.10 0.35 1.21 1%
Airports 0.19 0.22 0.25 0.21 0.25 0.05 0.26 1.43 1%
Urban Infra. 2.98 4.62 4.04 2.35 2.17 1.60 1.43 19.19 17%
Digital Infra & Irrigation
Digital Communication 0.78 0.62 0.55 0.39 0.38 0.38 – 3.10 3%
Irrigation 1.14 2.01 1.76 1.37 1.15 0.70 0.81 8.94 8%
Rural, Agricultural, Social
Rural Infrastructure 1.40 1.77 2.11 1.12 1.07 0.27 – 7.74 7%
Agriculture & Food Processing 0.04 0.04 0.04 0.02 0.01 0.01 1.54 1.69 2%
Education 0.25 0.35 0.42 0.36 0.34 0.18 0.24 2.14 2%
Healthcare 0.29 0.40 0.40 0.16 0.10 0.07 0.10 1.51 1%
Industrial Infrastructure 0.17 0.41 0.43 0.34 0.23 0.11 1.39 3.07 3%
Ministry of steel – – – – – – 0.08 0.08 0%
Sports Infrastructure 0.01 0.02 0.01 0.01 0.01 0.01 0.01 0.09 0%
Tourism 0.01 0.02 0.02 0.02 0.01 0.01 0.11 0.20 0%
Gross Total Spending 14.40 21.51 21.30 16.46 15.41 13.15 9.07 111.30 100%
Total Sector wise spending (in INR Trillion)
1) FDI – Flow of Low-cost capital in the form of FDI requires a) liberal FDI policies b) clarity in Tax regulations c) Clear Mechanism of arbitration d) Repatriation facility. e) Having a model investment agreement with international best practices.
2) Credit rating of Infra Projects – Credit rating agencies in India traditionally gives the opinion based on Probability of default (PD)methodology and it will lower the credit rating even of an operational infra projects if there is a short period liquidity mismatch. The credit rating agencies has to look into expected loss rating Scale (ELRS) instead of PD as the ELRS focuses on the recovery of dues to lenders and investors over the life cycle of the project. It considers the possibility of refinance/restructuring, residual economic life and the presence of embedded safeguards typically present in infrastructure projects.
3) Regulatory restrictions on Investments – The infra capital is a long-term investment money and the blanket regulatory restrictions on pension & insurance funds in the form of a) Net worth requirements of infrastructure companies b) restriction to invest in SPVS opened as private limited companies c) Restriction to invest in category risky projects will create artificial capital scarcity in the market.
4) Deepening Bond and other capital markets including secondary market participation in Infra projects – The major hurdle for attracting investments into infrastructure projects through issue of securities is their lower credit rating. A credit enhancement institution can bridge the gap between the issuer’s credit rating and the expected rating by a typical investor. A credit guarantee from a higher rating institution ideally from the federal govt. will enhance the credit rating of the project hence channel investments into the projects. It will naturally create a secondary market for the issued securities and bring liquidity into the market.
5) Allowing Innovative structured Instruments – Other than outright sale of assets, an owner of the asset can bring in investments through securitizing the incomes from the investments. The same can be used in loan assets through securitization of loan assets by original lending institutions. Notes or instruments of investments issued by InvITs (Infrastructure Investment Trusts) And REITs (Real estate investment trusts) against the asset pool held by them should have a proper secondary market and clearing mechanism to attract liquidity. Various stages of securitization of cash flows are listed below.
The asset owner can ask for an upfront large cash inflow from the securitization vehicle and the investors of the securities issued by the securitization vehicle can benefit from value accretion of the notes/securities issued in a stock exchange in addition to the dividends. This will create liquidity and give easy exit routes to the investors.
Financing of INR 111 trillion infrastructure spending: –
Below table shows the details of various sources mooted by the GOI to finance the INR 111.32 trillion National Infrastructure Pipeline (NIP) spanning over the next four years from now.
Available Source of Funding (NIP) Assumptions Expected Share of NIP Funding
Centre’s budget Centre’s budgetary outlay on capital investments is expected to be around 1.25% of GDP 18-20%
State’s budget State’s budgetary outlay on capital investments is expected to be around 1.7% of GDP 24-26%
Internal accruals – PSUs Projected to suffice for the funding requirements of NIP 1-3%
Banks Expected to grow at an average rate of 8% 8-10%
Infra NBFCs (PFC, REC, IRFC, IREDA, IIFCL and private sector NBFCs) Expected to grow at an average rate of 12% for public sector NBFCs and 15% for private sector NBFCs 15-17%
Bond markets Expected to grow at an average rate of 8% 6-8%
Equity Expected to grow at an average rate of 15% due to NIIF stepping up pace of investments 2-4%
Multilaterals/bilateral Expected to constitute half of the external aid flows 1-3%
Average expected financing through available sources (Conservative Estimates) 83-85%
NIP – Financing Gap 15-17%
From new DFIs (Development Financial Institution) 2-3%
Asset Monetisation-Centre 2-3%
Asset Monetisation-State 1-2%
Shortfall to be bridged 8-10%
The GOI is proposing to raise almost 5 % of the NIP spending through asset Monetisation initiatives. The GOI has announced a national Monetisation pipeline (NMP)which aims to raise capital/ investments to the tune of INR 6 trillion within the next 4 fiscal years by monetizing public assets. The Centre will incentivize the states opting to raise capital/ investments through monetizing their assets.
The national Monetisation pipeline (NMP) is coterminous with National infrastructure pipeline (NPI) period ,4-year period from FY2022 to FY2025. The NMP document has been developed and is structured as two volumes (Volume I & II) wherein the Volume I is being developed as a Guidebook comprising of conceptual overview, instruments, steps involved and key reform imperatives. Volume II comprises of the pipeline of Central Government ministries / sector wise citation of assets along with phasing and overview of assets. The NMP is meant to serve as an essential roadmap for the Asset Monetisation of various brownfield infrastructure assets across roads, railways, shipping, aviation, power, telecom, oil & gas, and warehousing sectors. In line with the recommendations of NIP task force report, GOI ‘s Budget 2021-22 has laid out a three-pronged strategy for enhanced and sustainable infrastructure financing in the country. This entails:
1. Creation of institutional structures;
2. Thrust on Monetisation of assets,
3. Enhanced share of capital expenditure in Central and State budgets.
From a medium to longer term perspective, the Budget proposes the following initiatives for creating a sustainable institutional framework for funding of infrastructure assets in the country
A) Development Finance Institution (DFI) B) Asset Monetisation
Professionally managed DFI to act as provider, enabler and catalyst for infrastructure financing Monetising operating public infrastructure
assets for new infrastructure construction
National Bank for Financing Infrastructure and Development Bill (2021) passed in March 2021 National Monetisation Pipeline of potential
brownfield infrastructure assets
A body corporate with initial GOI holding of
100% (more than 26% at all times) Asset Monetisation dashboard for tracking
progress and for providing visibility to investors.
(Investment opportunities in NIP & Non-NIP Projects, Stressed assets & CSR are listed in this portal)
Initial share capital of Rs 20,000 crore
Target Lending portfolio: Rs 5 lakh crore (3 years) Various assets/ asset classes targeted for Monetisation
Asset Monetisation: – From here onwards the article speaks only about Asset Monetisation Pipeline.
The strategic objective of Asset Monetisation programme is to unlock the value of investments in public sector assets by tapping private sector capital and efficiencies. Which can thereafter be leveraged for augmentation/ greenfield infrastructure creation. Asset monetisation, also commonly referred to as asset or capital recycling, is globally a widely used business practice. This consists of limited period transfer of performing assets (or disposing of non-strategic / underperforming assets) to unlock “idle” capital and reinvesting it in other assets or projects that deliver improved or additional benefits. Asset Monetisation, as envisaged in NMP, entails a limited period license/ lease of an asset, owned by the government or a public authority, to a private sector entity for an upfront or periodic consideration. A typical Asset Monetisation Structure is given below: –
a) Identification of Core Assets – Assets which are currently generating revenue or those which are completed facilities and can be suitably augmented for future operations have been considered as potential Core Assets for Monetisation.
b) Lease or divestment of rights over existing assets. No Ownership is transferred. The revenue streams of brown field de risked assets are ring fenced. The transaction is structured around the revenue rights.
c) Reinvesting in new infrastructure
Assets which are central to the business objectives of a public entity/ statutory body/Government body and are being utilised for delivering infrastructure services to public/ users have been categorised as Core Assets for the purposes of Monetisation. A bottom-up approach has been adopted wherein the existing core infrastructure asset base managed under central sector agencies was identified and mapped. Monetisation through disinvestment and Monetisation of non-core assets (such as land, building, and pure play real estate assets) have not been included in the NMP.
NMP is drawn using three key sets of information: –
a) Potential Asset Base: – ‘Potential Asset Base’ refers to the infrastructure assets under the purview of the central line ministries and CPSEs (Central Public sector Enterprises) covered as part of the NMP exercise. These include brownfield assets that are currently operational as well as assets that are expected to be operational over the NMP period.
b) Assets considered for Monetisation: – The ‘Assets considered for Monetisation’ are a part of the Potential Asset Base that is expected to be monetised over the NMP period (‘Assets for Monetisation’).
c) Indicative Monetisation Value: – The indicative Monetisation value that is expected to be realised by the public asset owner through the asset monetisation process, either in form of upfront accruals or by way of private sector investment. In case of brown field projects (which is monetized through Operation, Management & development Model – OMD) and assets which require significant capital investment over a period of time, the estimated amount of capex investment by private sector will be taken as monetized value. Under Public private partnership (PPP) based mechanisms, additional revenue streams that may accrue to the government towards revenue share and / or concession fee over and above the private investment
Following are the various approaches used to estimate the Indicative Monetisation Value: –
a. Market approach: – Under the ‘market approach’, indicative value is determined based on comparable market transactions, wherever available, for the identified asset classes
b. Capex approach: – The ‘Capex approach’ is considered for asset classes that may be monetised through PPP based models envisaging capex investment by private sector. The principle under the capex approach is that in the absence of the asset monetisation transaction, the Public Asset Owner would have to incur the outlay towards augmentation and O&M of the brownfield asset Hence, this approach captures savings to the Public Asset Owner by undertaking the asset monetisation transaction. Additionally, revenue streams or proceeds may accrue to the asset owners as concession granting authorities depending on the terms of PPP concession (such as revenue share, concession fee, premium, royalty, etc.).
c. Book value approach: – The ‘book value approach’ is considered in case of asset classes where information on comparable market transactions or estimated capex investment is not available. It considers the average capex cost incurred for developing a similar asset.
d. Enterprise value approach: – The ‘Enterprise value (EV) approach’ is considered for assets where information on existing revenue stream is available or can be reasonably projected based on assumptions and / or available data on prevailing tariff for an asset / asset class. In such cases, Net Present Value (NPV) of discounted cashflows has been worked out to determine indicative Monetisation value.
Asset class-wise approach adopted for indicative Monetisation value: –
Sl. No. Sector/Asset Approach to Monetisation of value
1 Roads Market Approach
2 Ports Capex Approach
3 Airports Capex Approach
4 Railways Railway stations – Capex approach
Passenger trains – Capex approach
Private freight terminals – Capex approach
Railway colonies redevelopment – Capex approach
Track infrastructure under DFCCIL – Book value approach
Track, OHE – EV approach
5 Power generation Book value approach
6 Power transmission Market approach
7 Natural gas pipeline EV approach
8 Product pipeline EV approach
9 Sports stadium Capex approach
10 Warehousing Capex approach
11 Telecom Capex approach for Bharatnet fibre assets
Market approach for tower assets
12 Mining Capex approach
13 Urban Housing
redevelopment Capex approach
Consolidated Monetisation Pipeline
The total indicative value of NMP for Core Assets of Central Government has been estimated at Rs 6.0 lakh crore over the 4-year period, FY22-25. The top 5 sectors (by estimated value) capture 83% of the aggregate pipeline value. These top 5 sectors include: Roads (27%) followed by Railways (25%), Power (15%), oil & gas pipelines (8%) and Telecom (6%). Roads and Railways together contribute 52% of the total NMP value. The assets and transactions identified under the NMP are expected to be rolled out through a range of instruments.
NMP of 13 sectors are listed below in detail covering a) Assets considered for monetisation b) Indicative Monetisation Value c) Model of Monetisation.
The Ministry of Road Transport and Highways (MoRTH) is the central line ministry responsible for development of National Highways (NH). The National Highways Authority of India (NHAI) responsible for development, maintenance and management of National Highways. The Potential Asset Base for roads sector includes aggregate National Highway (NH) road length estimated at about 1,36,155 km as on December 20, 2020. In terms of lane wise distribution of NHs as on March 31, 2019, of the total NH network, 23% (31,067 km) is comprised of four-laned roads and above, 49% are two-laned roads, and the rest are comprised of roads with less than two lanes. The NH construction is undertaken through three modes viz. EPC (Engineering procurement and construction), BOT (Build operate and transfer) and HAM (Hold and Modify). It is estimated that in recent years, majority of the projects are being awarded through EPC and HAM mode and NHAI retains the tolling rights over these stretches (and hence amenable for monetisation).
Assets Considered for Monetisation: – The NH network of 4 lane and above configuration, where NHAI reserves tolling rights, has been considered as amenable for monetisation for the purpose of identification of asset under NMP.
Asset Length to
be monetized Asset Length as a percentage of Potential Asset Base (%) Indicative Monetisation
Value over FY 2022-2025 (Rs crore) Share in overall NMP in value terms (%)
26,700 km 20% Rs 1,60,200 crore 27%
Indicative Monetisation Value :-The indicative Monetisation value has been estimated based on the ‘Market approach’. The multiple (in Rs crore per km) to estimate the indicative value is based on the average blended factor at Rs 6 crore per km. The estimate has been arrived at based on (i) recent TOT transactions (ii) asset mix to be monetised (iii) scale of monetisation. The average realisation by NHAI under past TOT concessions successfully awarded has been in the range of Rs 9-14 crore per km. A lower range at Rs 6 crore per km has been assumed to assess indicative monetisation value to factor in certain lower traffic stretches in the portfolio and impact of scale on monetisation.
Model for Asset Monetisation.
1. NHAI to set up Infrastructure Investment Trust, as per InvITs Guidelines issued by SEBI.
2. Selected operational portfolio of projects will be held through an SPV. SPV thus constituted is envisaged to execute a concession agreement with the NHAI for the said projects
3. NHAI InvITs issue is envisaged to be privately placed
4. A new entity wholly-owned by the NHAI, the National Highways Infra Investment Managers Private Limited (NHIIMPL), has been incorporated to act as the Investment Manager under the proposed InvITs transaction
Indicative Transaction structure of NHAI InvITs is given below.
Indian Railways (IR) is the fourth-largest railway network in the world by size, with 121,407 km (75,439 mi) of total track over a 67,368 km route. Asset Base considered includes assets owned and operated under the Ministry of Railways (MoR) (including identified PSUs and entities under MoR)
Indicative Monetisation Value over FY22-25 Share in overall NMP in value terms
Rs 152,496 crore 26%
Key assets for monetisation over FY22-25 (% of Potential Asset Base)
Railway stations 400 Nos. (5.5% of stations) (Tier 1- 50, Tier 2- 100, Tier 3- 250.)
Passenger trains 90 Nos. (5% of total trains)
Railway track 1 route of 1,400 km (2% of network)
Konkan Railways 741 km
Hill Railways 4 Nos., 244 km route
Railway owned Good-sheds 265 Nos. (21% of total good sheds)
DFC track and allied infrastructure 673 km (20% of total DFC network)
Others–Railway colonies and stadiums 15 Railway stadiums & selected Railway Colonies
Indicative Monetisation Value
a) Railway station: – It has been arrived at based on Capex approach, i.e., the capital cost towards the redevelopment of railway stations. The median capex per railway station is around Rs 400 crore. With this as the base, capex per railway station for the three categories of assets was estimated as follows: Tier 1 – Rs 500 crore per station, Tier 2 – Rs 300 crore per station, and Tier 3 – Rs 85 crore per station.
b) Passenger Train: – It has been arrived at based on Capex approach – capital cost towards acquisition of rolling stock plus an additional mark-up towards establishment and other PPP incidentals have been assumed. Additional revenue streams that may accrue to the Railways in form of revenue share and upfront premium if any under the PPP mechanism has not been included in the Monetisation value.
c) Track, signalling, and Overhead Equipment (Track OHE) InvITs: – It has been arrived at based on EV approach by carrying out a DCF based cashflow projection for a period of 25 years.
d) Private Freight Terminals (PFTs): – It has been arrived at based on capex approach. A capex of about Rs. 21 crore per good shed has been derived and considered for arriving at indicative monetisation value.
e) Monetisation of track and allied infrastructure of Dedicated Freight Corridor of DFCCIL: -The indicative Monetisation value for DFCCIL has been arrived at based on the Book Value approach i.e., taken at capital cost towards construction of existing DFCCIL corridors. The capital cost per km was estimated at Rs 30 crore (adjusted for land cost) based on ongoing capex costs
a) Other assets: Konkan Railway, Hill Railways, Railway Stadiums and colonies: – It has been arrived at based on EV approach for Konkan Railway and capex approach for Hill Railways and Railway stadiums. For Railway colonies and stadiums, Capex data provided by Ministry of Railways has been considered for inclusion in the pipeline.
Models of Monetisation
a) Station Redevelopment Programme
This initiative is being driven by the Government with the participation of private players as
a part of PPP projects. This is envisaged to be achieved through leveraging the commercial
development opportunity of land and air space surrounding the station and to create seamless travel and facilities experience to passengers with the aim to future-proof these important travel nodes.
b) Private participation in Passenger Train Operations: – The Model Concession Agreement guiding principles for the private passenger train operations has already been developed. Based on market testing of current cluster of transactions, the model may be replicated on many more routes in future.
c) Track, Signaling, and Overhead Equipment (OHE) infrastructure: – Ministry of Railways may explore monetisation of its operating track infrastructure bundled with signaling and OHE/ TRD (Traction & Distribution) assets for selected origin-destination (O-D) pair through a structured financing mechanism.
Snapshot of Indicative Transaction structure
Asset Bundle Track infrastructure bundled with signaling and OHE/ TRD assets
(Specified assets) for a selected origin-destination (O-D) pair
Monetisation instrument Infrastructure Investment Trust
Tenure Fixed term of 25 years (assets to be handed back to IR at end)
Structure a. Pre-determined Track Access Charges (TAC) (Rs per train km) paid by IR to the SPV
b. Creation of an SPV for holding long term rights to earn Track access charge (TAC) revenue from IR for the specified asset bundle
c. SPV’s TAC revenue stream to be monetised by creation of an InvITs sponsored by IR, units of InvITs divested under a private placement/ public listing.
Monetisation of Track OHE infrastructure – Indicative transaction structure
d) Good Sheds as Private Freight Terminals / Multi Modal Logistics Hubs: – At present, private freight terminals are built by private investors on private land, and connectivity is provided by railways to the operators on lease.
Asset Monetisation: – PPP model allowing private parties to setup & develop good sheds on railway land. Share of Terminal charges (TC) & Terminal Access (TAC) charge will be given by railways for all traffic for 5 years after the completion of work. The private investor can earn additional revenue by establishing canteen& advertisement.
e) Hill Railways: – Mountain railway consist of fully functional & operational rail networks in India and these runs through domestic tourism hubs & Heritage sites.
Asset Monetisation: – Through Operate Maintain & Develop (OMD) based PPP model. The station and adjoining real estate on the Railway land may be bundled along with train operations to bring in viability and commercial attractiveness.
f) Dedicated Freight Corridor (DFC): – DFCCIL, an SPV, was established in 2006 under the administrative control of the Ministry of railways (MoR) to undertake planning, development, mobilisation of financial resources, construction, maintenance, and operations of Dedicated Freight Corridors (DFCs). In terms of revenue model, the key customer of DFCCIL would be (Indian railways) IR, with DFCCIL earning revenue through a TAC (track access) mechanism. IR would decide the trains that would run on the DFC network. Freight booking would be done through IR, which would then assign traffic to the DFCs. TAC would be determined by DFCCIL in a way that it covers fixed and variable components of providing and maintaining track infrastructure.
Asset Monetisation: – Two potential instruments may be explored for monetisation of dedicated freight corridor; InvITs and Carry Operate Transfer (COT) Concession
Salient Features of COT concession Model: –
Authority Ministry of Railways / DFCCIL
Concessionaire Scope Grant of a Carry Operate Transfer (COT) concession for operation and maintenance of Eastern and Western Dedicated Freight Corridors in separate packages
Concession Period 50-60 years
Revenue TAC (to be indicated under the Concession Agreement) with pre-specified indexation mechanism
Traffic Minimum traffic guarantee may be explored (as a % of existing traffic)
Monetisation consideration Monetisation value may be paid upfront (or in instalment). Additionally, Revenue sharing mechanism from additional traffic over minimum traffic guarantee may be specified as per prespecified percentage
Authority support Minimum traffic guarantee, Approval for non-IR freight trains, Reasonable support for approvals/clearances
Selection process Eligibility: threshold financial capacity (minimum net worth,
annual revenue, profitability, etc.)
Open competitive bidding process similar to PPP projects
Indicative Transaction structure
Salient Features of InvITs Model: –
1 Asset Bundle OR Right to operate, maintain and earn revenue from such assets transferred under an InvITs
2 An SPV may be created sponsored by MoR/DFCCIL
3 Fixed term of 50-60 years (Assets to be transferred to MoR/DFCCIL at end)
4 Appointment of Trustee, Investment Manager, Project Manager as per SEBI regulations
5 Units of InvITs divested under a private placement/public listing (15% for at least 3 years; possibility of higher holding)
6 Professional Project Manager should undertake the O&M
7 Minimum Traffic Guarantee by Authority (As percentage of Existing Traffic) may be explored
Indicative Transaction structure
Comparative assessment of COT Vs InvITs Models for monetizing Freight Corridor
Comparison Areas Carry, operate and transfer
Lead time for Monetisation post
commissioning May be monetised as soon as a particular stretch is operational May need to establish 1 year of operational history as per SEBI regulations
Target Investor category Infrastructure focused investors / developers and funds Both public listing and private placement possible; possibility to tap retail investors in public listing
Valuation driver Premium for control Premium for liquidity
Future Cashflows for
Authority Revenue share to capture
windfall gains Dividend against holding of MoR/ DFCCIL
Phased addition of assets Through grant of standalone PPP concessions Possible by way of future offerings by the InvITs
C) POWER TRANSMISSION
The potential asset base considered for NMP under power transmission asset class is the transmission infrastructure of the nodal central transmission utility, Power Grid Corporation of India Ltd (PGCIL). PGCIL owns inter-state transmission assets comprising of both the regulated tariff mechanism (RTM) and tariff-based competitive bidding (TBCB) modes. The bulk of the PGCIL’s assets (to the extent of about 95%) belong to the regulated assets category, viz. RTM which works on a cost-plus model providing for an assured return on equity and cost recovery through the tariff fixed by the regulator over 5-year control periods.
Asset base considered for Monetisation over FY22-25 Asset planned for monetisation as % of asset base over FY22-25 Indicative value
over FY22-25 Share in overall
NMP in value
28,608 circuit Kilo meter (ckm) 17% Rs 45,200 crore 8%
Indicative Monetisation Value: – A Market approach has been adopted to determine indicative monetisation value. The indicative monetisation value of the transmission assets has been considered based on a factor of Rs 1.58 crore per ckt km.
Models of Asset Monetisation: –
1. Monetisation of Transmission assets of POWERGRID through InvITs: –
The PGCIL InvITs has been set up with the objective of monetising its completed and operational transmission projects through alternative sources such as capital markets and by diversifying its investor base. The InvITs will initially have IPAs, comprising five power transmission projects. Each of the IPAs (initial Portfolio of assets) has in place a long-term TSA (Transmission service agreement) of 35 years from the scheduled COD (Commercial operations date) of the relevant IPA.
Proposed Structure – PGCIL InvITs: –
2. Monetisation of RTM (Regulated Tarif Mechanism) Transmission assets of POWERGRID
RTM assets are based on regulated returns or cost-plus tariff models and these assets will be in the balance sheet of the parent entity and require arrangements / demerger to transfer it to SPV and hence will have capital gain tax & stamp duty tax on such transfer. The GOI has made some amendments to various acts to declassify it as transfer.
Asset Monetisation: –
A monetisation model similar to the toll-operate-transfer (TOT) model may also be explored for successful monetisation of RTM transmission assets. The TOT model has been conceptualized by (Ministry of Road Transport & Highways) MORTH for undertaking the Monetisation of operational toll road projects. This model focuses on income yielding assets with established cash flows, and there is no transfer of ownership of assets from the Authority to the Concessionaire. The concessionaire retains the revenues and is responsible for undertaking O&M obligations only, and this model does not involve the concessionaire assuming any construction risk.
The potential asset base considered are telecom tower assets under the central sector entities, namely Bharat Sanchar Nigam Ltd (BSNL), Mahanagar Telephone Nigam Ltd (MTNL) and Bharatnet optical fibre assets under the central sector entities, namely Bharat Broadband Network Limited (BBNL) and Bharat Sanchar Nigam Ltd (BSNL).
Assets for monetisation in FY 2022 to 2025 Asset monetised as % of asset base (FY 2022- 2025) Indicative
value in FY 2022-2025 Share in overall NMP in value terms
2.86 lakh km of Bharatnet Fiber 14,917 Nos. of BSNL
& MTNL towers Bharatnet Fibre – 57%
Towers – 21% Rs 35,100 crore 6%
Indicative Monetisation Value: –
a) Tower Assets: – NPV of EBITDA 30-year period has been taken as the indicative monetisation value from tower asset monetisation. Reference value per tower asset is about RS 38 Lakhs per tower.
b) Bharatnet Fibre Assets: – The indicative Monetisation value for Bharatnet fibre assets is considered based on Capex approach.
Monetisation Models: –
Monetisation potential of telecom towers of BSNL: – BSNL’s tenancy ratio (Average number of tenants / operators sharing tower) on towers is 1.2 compared with the average of 1.9 for private players hence ample opportunity is available to monetize the asset. Monetisation of tower rental receivables through a PPP based concession will help in generating upfront equity liked funds for BSNL
Rent-Operate-Transfer (ROT) Concession model for Telecom Towers: –
This model entails grant of a long-term PPP concession for the utilisation of operational pipeline capacity through a PPP concession akin to the TOT model successfully employed by NHAI in the roads sector. The right to rent, operate and maintain the tower rentals will be granted to a concessionaire for a pre-defined concession period as against an upfront consideration, which could be the bidding parameter.
Monetisation potential of Bharatnet Fiber Network: – The project is proposed to be implemented through DBFOT (Develop, Build, Finance, Operate and Transfer) model under PPP mode. The implementation shall be through an SPV wherein the Concessionaire, selected through a competitive bidding process, would enter into a Concession Agreement with the Authority to Develop, Build, Finance, Operate and Maintain the Project Facilities over the pre-agreed Concession Period and Transfer the same to the Authority or its designated agency at the end of the Concession Period (DBFOT). The Concession Period is 25 years (including construction period) from the appointed date.
E) POWER GENERATION
The potential asset base considered is the existing power generation capacity of central sector entities under the Ministry of Power. Monetisation of coal and gas assets has not been considered during the NMP period. Key entities whose assets have been considered are NHPC, NTPC & SJVNL who own bulk of the hydel assets and NTPC (under Ministry of Power) and NLC (under Ministry of Coal) that own renewable assets.
Assets for Monetisation over
FY22-25 (GW) Assets planned for
monetisation as %
of asset base over
over FY22-25 Share in overall
NMP in value terms
6.0 GW (3.5 GW
Hydro, 2.5 GW Renewable Energy) 6% Rs 39,832 crore 7%
Operational hydel generation assets are more amenable to monetisation given the offered flexibility in operations and renewable nature rendering them eligible for meeting Renewable Purchase Obligation (RPO) for states. Further, the hydro assets operating under a regulated tariff regime provide a degree of predictability to investors on the return on their invested capital.
Indicative Monetisation Value: – The book value approach has been adopted to determine an indicative value of the above-mentioned assets varying based on the vintage value of the asset.
(i) the average realization value for hydel assets has been tentatively considered as Rs 7.5 crore per MW;
(ii) the average realisation value for solar assets has been tentatively considered as Rs 5.5 crore per MW
F) NATURAL GAS PIPELINES
The natural gas pipeline assets are usually backed by long-term customer relationships, ensuring cash flow stability. The market leader GAIL has well established and long-standing relationships with customers across industry segments, including power, fertiliser, city gas distribution companies, etc. The natural gas pipelines operate under a regulated pricing regime. The oil regulator Petroleum and Natural Gas Regulatory Board (PNGRB), by tariff regulations, determines the per unit tariff for natural gas pipelines, allowing operators a reasonable post-tax return on capital employed, and remains fixed for its entire economic life. The gas transmission revenues are substantially derived from gas transportation agreements with customers having high dependence on select large customers. Structures, where the central sector agencies provide some backstop arrangements to reduce the counterparty risks, may provide some comfort to investors. This will enable near-term revenue visibility with a minimum guaranteed offtake.
Assets for Monetisation over
FY22-25 (KM) Assets planned for
Monetisation as %
of asset base over
over FY22-25 Share in overall
NMP in value terms
8,154 km 25% Rs 24,462 crore 4%
Indicative Monetisation Value: – The Enterprise Value (EV) approach (in Rs crore per km) has been considered and the average value for reference purpose is RS 3 crore per KM.
Monetisation Models: – Possible arrangements include an SPV may enter into a pipeline usage agreement (PUA) with the sponsor, whereby the latter could contract a certain capacity of the pipeline for a long term, thus providing assured offtake for a threshold level of throughput.
a) Carry-operate-transfer (COT) concession: – This model entails grant for a long-term PPP concession to utilise operational pipeline capacity through a PPP concession akin to the TOT model, successfully employed by NHAI in the roads sector. Entities can explore this model without creating the pipeline subsidiary or actual transfer of pipeline assets from the balance sheet into a separate SPV.
b) Creation of a Pipeline InvITs: – Under an InvITs structure, operational pipeline assets or revenue rights on the assets can be parked directly or through an SPV under an InvITs. InvITs (the trust) can be owned by the asset owner CPSE as the ‘Sponsor’ with investors holding a partial stake. An InvITs structure involves high standards of strong corporate governance through the appointment of an investment manager, project manager and trustee.
G) PETROLEUM, PETROLEUM PRODUCT PIPELINES & OTHER ASSETS
Assets for Monetisation over
FY22-25 (KM) (Product Plus
LPG Pipeline Assets planned for
Monetisation as % of asset base over FY22-25(Product Plus LPG Pipeline) Indicative
over FY22-25 Share in overall
NMP in value terms
3,930 km 23% Rs 22,503 crore 4%
Asset Classes LPG Pipelines, Petroleum product pipelines, Hydrogen generation plants,
ESG assets (Effluent treatment plants, Sulphur recovery units, Flare gas recovery systems)
The total potential asset base considered are the operational product and LPG pipelines operated by the central sector entities, namely Indian Oil Corporation Ltd (IOCL), Hindustan Petroleum Corporation Ltd (HPCL) and Gas Authority of India Ltd (GAIL). The pipelines with the capacity utilisation of 100% and above have been considered. However, the public sector agency may bundle some of the high utilisation assets with moderate and low utilisation assets to ensure better risk transfer.
Indicative Monetisation Value: –
a) Hydrogen Units & ESG assets: – Indicative Monetisation value for these assets has been taken based on information on monetisation value received from the ministry. Based on the range provided by the ministry, Rs. 8,000 crores have been considered divided equally over the NMP period for ESG assets which will be monetised as core assets. For Hydrogen generation Plants, Rs. 1,200 crores divided equally over FY22 & 23, has been taken as the indicative monetisation value based on information provided by the ministry.
b) Product pipeline assets: EV approach has been adopted to determine the indicative monetisation value for pipeline assets. The NPV of the operating profit across pipeline assets has been taken as the basis for arriving at indicative monetisation value. The operating profit has been estimated across two steps: (i) Estimation of tariff based on (Petroleum and Natural Gas Regulatory Board) PNGRB approved rates in NPV terms across fixed (Rs 0.1 per MT) + variable component (Rs 10 per MT per km) for recent pipeline transactions (ii) Operating margin factor of 65% assumed on the above tariff to estimate the NPV of operating profit
c) LPG pipeline assets: EV approach has been adopted to determine the indicative monetisation value for LPG pipeline assets. As in the case of product pipeline assets, the NPV of the operating profit across LPG pipeline assets has been taken as the basis for arriving at indicative monetisation value. The NPV of tariff of Rs 12 per MT per km (in line with tariffs for select pipeline transactions) and an operating margin of 65% has been assumed for estimating the indicative value.
H) WAREHOUSING ASSETS
The potential asset base considered for monetisation under warehousing assets consists of storage depots, warehouses under the central sector agencies, Food Corporation of India (FCI) and Central Warehousing Corporation (CWC), with both entities operating under the aegis of Department of Food & Public Distribution (DoFPD).
Assets for Monetisation over
FY22-25 (KM) Assets planned for
Monetisation as %
of asset base over
over FY22-25 Share in overall
NMP in value terms
210 lakh metric tonne (LMT), 175 LMT – FCI, 35 LMT–CWC 39% Rs 28,900 Crore 5%
Indicative Monetisation value: – The indicative monetisation value has been arrived at based on the ‘Capex approach’. The capex for all the projects has been based on high level estimates provided by the DoFPD as part of the pipeline. The cost assumptions are as follows: (i) capex per LMT for silos has been estimated at Rs 100 crore per LMT, (ii) cost per cold storage facility has been considered at Rs 40 crore per location.
Monetisation Structures: –
1) Monetisation via the infrastructure investment trust (InvITs) route. InvITs based Monetisation model envisages creation of an SPV with long term contracted rights to earn storage charges from FCI and other third-party users with transfer back to the Authority / Sponsor at the end of 25-30 years. Indicative Structure under InvITs Model is given below.
2) Suitable PPP models akin to TOT (toll-operate-transfer) model adopted by NHAI for highways suitably customized for brownfield warehousing assets and OMD (Operate maintain& develop) based model for assets where augmentation and capacity expansion is envisaged.
Operate manage and development rights are given to a private party for 25 to 30 years. They can earn Storage and handling charges paid by FCI (assured capacity) and third parties (surplus capacity).
Indicative Structure of Operate, Manage and Develop (OMD) based PPP model is given below.
I) MINING ASSETS
Number of identified
projects for monetisation
over FY22-25 Indicative monetisation
value over FY22-25
period Share in overall NMP in
160 projects Rs 28,747 crore 5%
MINERAL MINING ASSETS SUMMARY
761 blocks over FY22-25 Fresh mineral blocks
G4 level Composite
License, G2 / G3 level
ML applications under
Section I0A(2B) Auctioned by:
Value: Not assessed
Ministry of Mines in 2015 amended the MMDR Act, 1957 which introduced auction regime to bring transparency in allocation of mineral blocks. Besides, the Ministry has initiated a number of reforms pertaining to auction of mining blocks as a result of which a large number of mineral blocks will be available for auction during the coming years. The approach to monetisation has been anchored on the project assets identified by the line ministries for monetisation.
J) AIR PORTS
The total Potential Asset Base considered includes airports under Airports Authority of India (AAI) and its joint venture (JVs) under the aegis of the Ministry of Civil Aviation.
Number of AAI airports considered for Monetisation Assets planned
for Monetisation as % of existing AAI airports Indicative
Monetisation Value over FY22-25 Share in overall
NMP in value
25 18% Rs 20,782 crore 4%
During FY 22, AAI has identified 6 airports in Tier 2/Tier 3 cities namely, Amritsar, Varanasi, Bhubaneswar, Indore, Raipur and Trichy for the purpose of monetisation through brownfield PPP models. Further, divestment of AAI’s residual stake in four airport JVs has also been considered under the monetisation pipeline. This includes the private sector operated airports in Mumbai (26% stake), Delhi (26% stake), Hyderabad (13% stake), and Bangalore (13% stake). Air ports having annual traffic above the threshold of 0.4 million passengers (in FY 2019 and 2020) have been considered.
Indicative Monetisation Value: – The ‘Capex approach’ has been considered for arriving at the Indicative Monetisation Value. In the absence of availability of airport-wise capex, a normative assumption of Rs 130 crore per million incremental passenger capacity (for moderate sized airports) and Rs. 200 crores (for larger airports i.e., FY 19 annual passenger throughput of more than 1 million) per million incremental passenger capacities has been considered. A ‘Market approach’ has been adopted for determining indicative valuation of AAI stake in private JV airports. As per secondary sources and estimates based on recent transactions involving sale of stake in Indian airports, the total indicative value of AAI’s residual stake in the above-mentioned four JVs has been tentatively taken at Rs10,000 crore for inclusion in the pipeline.
K) SEA PORTS
The primary model for monetisation of ports and shipping assets is by way of grant of PPP concessions. GOI wants to move from service model to landlord model and bring in more private sector capital for capex investments and to drive operational efficiency. Further, GOI has made many of amendments in various acts to bring in dispute resolution mechanism and to provide relaxed exit route developers.
Number of developments
projects planned in major ports Total Indicative Investment over FY 2022-2025 (Rs crore) Share in overall NMP in
value terms (%)
31 projects in 9 major ports Rs. 12,828 crores 2%
L) SPORTS STADIUMS
The total potential asset base considered are the assets under the Sports Authority of India (SAI) under the aegis of the Ministry of Youth Affairs & Sports. The assets are largely managed under the Sports Authority of India (SAI) and categorized into three broad categories – stadiums (managed by the Stadia division), regional centres and academic institutions. The focus of monetisation is on the stadiums and regional centers.
Assets planned for
monetisation in FY22-25 Indicative monetisation
value in FY22-25 (Rs crore) Share in overall NMP in
value terms (%)
2 National stadiums and
2 regional centres Rs 11,450 crore 2%
Indicative Monetisation Value: – The assets considered for monetisation include specific assets for which ministry has identified specific plans towards the development of the facilities under brownfield PPP mode. Capex approach has been adopted to determine the indicative monetisation value for stadium assets. The estimated capex has been considered as the approach to estimate the Monetisation value.
Monetisation Structures: – OMDA (Operation management development agreement) based PPP concession agreement. The project structure envisages grant of a concession to a private operator to operate, maintain and augment or redevelop and upgrade the existing facilities at the stadium.
As part of the concession, the private partner may be granted development rights at the site subject to compliance with applicable local laws. A concession period of 30 years may be explored, extendable by another 30 years subject to asset life and viability considerations. The authority will get an upfront premium, annual concession fee and revenue share.
Indicative transaction structure of OMDA-based sports stadiums/ complex is depicted below
M) URBAN REAL ESTATE ASSETS
a) Redevelopment of Colonies: – Ministry of Housing & Urban Affairs (MoHUA) owns and manages land through the Land and Development Office (L&DO). During the NMP period, the following projects pertaining to redevelopment of colonies are being envisaged. PPP based model is recommended for redevelopment of such GPRA projects cross subsidized through sale / lease of commercial BUA.
Housing redevelopment Assets
Category Locations / particulars Estimated Investment
Redevelopment of 7 General
Pool Residential Accommodation
(GPRA) Colonies in Delhi Sarojini Nagar
Kasturba Nagar 32,276 crores
Development of residential /
commercial units on 240 acres land in Ghitorni (Delhi) 8000 units of GPRA
3000 units for migrant
construction workers 15,000 crores
Under a PPP based model for such projects, the entire land parcel should be transferred into an SPV owned by the Authority. The SPV should then be bid out under PPP mechanism through a transparent competitive bidding system.
b) Hospitality assets: – The total asset universe considered for the exercise are the hotel assets under the central sector agencies India Tourism Development Corporation (ITDC) under administrative control of the Ministry of Tourism. ITDC is running hotels, restaurants at various places for tourists, besides providing transport facilities.
Identified projects–ITDC Hotel assets
Sl. No. Hotel name Location
1. Hotel Pondicherry Puducherry
2. Hotel Kalinga Bhubaneshwar
3. Hotel Ranchi Ranchi
4. Hotel Nilachal Puri
5. Hotel Anandpur Sahib Rupnagar
6. Hotel Samrat New Delhi
7. Hotel Ashok New Delhi
8. Hotel Jammu Ashok Jammu
All 8 hotel assets of ITDC have been considered for monetisation during FY 2022 to 2025.
Long-term leasing, divestment, long term OMT contract may be explored as potential models for monetisation to be ascertained on a case-to-case basis as per detailed asset level due diligence.
SECTION-III ASSET-MONETISATION FRAMEWORK & INSTRUMENTS
Asset Monetisation can be undertaken through a range of instruments/ tools. This section summarizes some of the few models, which have been utilized and have proven to be effective in monetizing brownfield assets. Monetisation models which are currently being explored/ availed may broadly be categorized into two approaches:
(i) Direct Contractual Approach: – Concession/ contract between a public entity and identified private sector developer(s)/ investor(s)
(ii) Structured Financing models: – Structured instruments for long-term fund generation via capital markets or through a pool of investors
Comparative analysis of both methods
Particulars Direct Models Structured Models
Consideration to Authority Upfront and/or periodic payments Generally Upfront
Target Investors Generally, infrastructure developers, strategic investors with direct involvement / oversight in operations Institutional investors such as sovereign wealth funds, global/domestic insurance funds, pension funds and Retail investors
Selection modes Through a competitive bidding process and as per prescribed guidelines of Government Public listing or private placement or other such mechanisms
Structures PPP concessions Infrastructure Investment Trust (InvITs), Real Estate Investment Trust (REIT),
Asset-back securitization (ABS)
A) DIRECT CONTRACTUAL MODELS – BROWNFIELD PPP CONCESSIONS: – Brownfield PPP model envisage an end-to-end O& M partnership with private parties whereas the traditional O&M models are short tenure contracts with private party looks only on O&M part while the service obligation vests with the public authority. Two major types of brownfield PPP models are OMT &) OMD
Brownfield Public Private Partnership Concessions
Model Operate Maintain Transfer (OMT) Operate Maintain Develop (OMD)
Adopted as Toll Operate Transfer (TOT)
in Roads Operation Management Development Agreement (OMDA) in Airports
a) Operate Maintain Transfer (OMT) concession: – This presupposes that construction works have been completed by the asset owner/ government and the project is amenable to immediate revenue collection. OMT contracts have seen strong impetus in road sector in India. OMT agreements are for longer Concession period of 10 year and more.
OMT Broad Structure: –
b) Toll Operate Transfer (TOT) Concession: – Toll Operate Transfer (TOT) is a variant of the OMT model, recently adopted in roads sector, where consideration paid to the Authority is in form of an upfront premium. The TOT model primarily entails securitization of the toll receivables by collecting an upfront concession fee from the selected bidder and determined through a transparent competitive bidding mechanism. The structure involves leasing out of operational national highways (NHs) (ideally constructed under the EPC model -Engineering Procurement and construction) with consideration paid upfront. The road assets are awarded to winning bidders who are granted concession to collect toll and to maintain the roads over the life of the concession which is 15-30 years.
c) Operate–Maintain-Develop (OMDA) Concession: – Under the Operate Maintain and Develop structure, an asset which is operational but due for augmentation is handed over to the private party for augmentation and O&M over the concession period which is 25 years or more. The private sector raises finance on the strength of the existing assets and / or obtains project financing along with equity contribution for undertaking such augmentation. The private sector pays an upfront or an annual consideration (in form of a premium and / or revenue share) and earns its returns through revenues from upgraded asset.
OMD Structure: –
d) Rehabilitate-Operate-Maintain-Transfer (ROMT) Concession: – This is similar to OMDA concession and this structure is used where an existing asset ideally needs to be first upgraded/augmented before the operations and collection of the revenue can be resumed. Here as well, the concession terms are generally similar to OMD contracts
e) Design Build Finance Operate Transfer (DBFOT) concession: – This structure is best suited for building additional infrastructure by leveraging on the existing infrastructure of an active revenue generating asset. Such assets, on account of their brownfield nature allow reduced upfront investment for the concessionaire (in certain cases revenue potential from day one) thereby ensuring higher viability.
f) LONG TERM LEASE: – Leasing is conferring the right to use an asset for period against periodic or upfront payment. Generally, sub optimally used assets can be given on lease to private parties who has the infrastructure to utilize the assets for rendering better services. Leasing can be used along with other PPP models. Normal tenure of a leasing contract will be 10 years or more. These models can be used for achieving asset light balance sheets.
B) INFRASTRUCTURE INVESTMENT TRUST: – Infrastructure Investment Trust (InvITs) is an innovative trust-based financial instrument. Under an InvITs transaction, infrastructure asset owners transfer multiple revenue generating asset SPVs through holdco or otherwise to a trust which then issues units to investors for raising money. The upfront money so raised is utilized by the developers for creation of new greenfield assets as also for repayment of debt which enables availability of capital for investment/ lending to new projects. The investors, in lieu of invested money, receive a share of Net Distributable Cash Flows (NDCF – similar to the dividend pay-outs) on a periodic basis, commensurate with their unit holding in the Trust. Improved yields for the unit holders can be insured, by adding revenue-generating projects and expanding its portfolio. Detailed step by step explanation of an InvITs transaction is given below: –
a) An Asset owner or A developer under PPP concession agreement, creates an SPVs to hold the revenue generating assets having a predictable cash flow. The SPV will have development, O&M rights of the underlying asset and to collect the revenues and invest in the assets to augment revenue generation. These rights are transferred for a longer tenure depending up on the nature of the underlying asset and the objective of the asset owner.
b) Transfer the ownership of the SPVs to a Holdco created specifically for holding ownership in the SPVs. The transaction can be done without creating a holdco.
c) Holdco/SPV then creates an independent trust for the purpose of securitizing the predictable cash flows from the underlying assets. The trust will have guarantee/sponsoring from the operating SPVs/Asset owner/ PPP concessionaire as the case may be. These guarantees will enhance the credit rating of the trusts and attract cheap capital into the SPVs.
d) The trust will securitize the cash flows of the underlying assets and issues units/ securities to various investors. The units / securities can be listed in a stock exchange. The units can be a debt or equity instruments.
e) The money collected will be invested into the SPVs to augment/ develop the underlying asset or can be used to pay the asset owner as per the concession agreement terms.
f) Unissued units of the trust can be leveraged by the SPVs to raise additional capital into the SPV for underlying asset development.
g) The trust can transfer the money to the SPVs as loan and get an interest from it.
h) The SPVs can leverage its underlying assets prior to units’ issue by the trust to increase the asset base and cash flow. In such case the money received from the trust can be used to repay the high-cost debt and clean the books.
The structure of a typical InvITs transaction and the fund flow across agencies is given below: –
Dividend issued by SPVs to InvITs is tax exempt but will be taxable in the hands of unit holder.
Institutional stakeholders: –
The key stakeholders with respect to InvITs include the sponsor (usually the asset owner, the sponsor is the entity that sets up the InvIT. In case of traditional procurement route, the public sector agency is usually designated as the sponsor and in case of PPP, the private sector developer/project SPV holding the concession agreement is the sponsor), unit holders (usually the private sector investors), the trustee (one who holds the InvITs assets in trust for the benefit of the unit holders), and project managers (usually developers/ asset managers and may be private sector/ public sector entities) and investment manager (responsible for adding assets to the InvITs / divesting assets from the InvITs / other financing decisions related to the InvITs).
The steps in a typical InvITs transaction are represented in the figure below: –
INVIT – REGULATORY FRAMEWORK AND PROCESS: -InvITs in India are established as trusts under the Indian Trust Act, 1882 and regulated under the SEBI (Infrastructure Investment Trusts) Regulations, 2014.
Salient features of SEBI InvIT Regulations 2014
Sponsor– Eligibility Minimum net worth: Rs. 100 crores;
At least 5 years of experience as developer and two projects
Mode of Placement Private Placement
SPV shareholding InvIT must hold at least 51% stake in the Project SPV
Investment Value of InvIT assets: Minimum Rs. 500 crores
Initial offer size of InvIT: At least § 250 crore
For Public Placement: –
Not less than 80% of InvIT value to be invested in “completed and revenue generating projects” in eligible infrastructure projects (directly or through Holdco)
For Private Placement: –
Not less than 80% in eligible projects
Holding Period An InvIT shall hold an infrastructure asset for a period of not less than three years from the date of purchase of such asset by the InvIT
Payment to unit holders Not less than 90% of net distributable cash flows of the SPV
distributed to the InvIT; Not less than 90% of net distributable cash flows of the InvIT distributed to unit holders; Distribution at least twice in a year
Borrowings A listed InvIT may issue debt securities as long as the consolidated
borrowings and deferred payments (of InvIT, Holdco and SPV), net of
cash and cash equivalents do not exceed 70% of the asset value.
In case of aggregate borrowings and deferred payment exceeding 49%, the InvIT has to be rated AAA
C) REAL ESTATE INVESTMENT TRUST(REITs): – Real estate assets are capital-intensive assets which require substantial up-fronting of investments by the developer. While the land and building based debt products have been available, this does not provide for effective risk-sharing and cost-effective financing for the developer. Real Estate Investment Trusts (REIT) are similar in structure to InvITs. The regulations also stipulate that 51% of the consolidated revenues of the REIT, holding company and SPV, should arise from rental, leasing and letting real estate assets or any other income incidental to the leasing of such assets. However, exceptions have been made with respect to (i) hotels hospitals and convention centres forming part of composite real estate projects, whether rent generating or income generating; and (ii) common infrastructure for composite real estate projects, industrial parks and SEZs.
The structure of a typical REIT transaction and the fund flow across agencies is given below: –
Dividend issued by SPVs to REITs is tax exempt but will be taxable in the hands of unit holder.
Institutional stakeholders: –
a) SPV – is the entity which holds the controlling stake (51% or higher) either directly or indirectly (Through a holding company). It may be registered as a company (under companies Act, 2013) or as (LLPs). The SPV should hold at least 80% of its assets directly in properties.
b) Sponsor – The sponsor is the entity that sets up the REIT and transfers its assets to the same. The sponsor may choose to transfer the entire shareholding or interest/ rights to the SPV. The sponsor may also sell its stake in the units to another party, who will be “redesignated sponsor” for the REIT. However, such sales can happen only after a period of three years from the date of listing.
c) Manager- is responsible for the management of assets and investments of the REIT. The manager needs to have a net worth of at least Rs. 10 crore and an experience in fund management and advisory services of at least 5 years to be eligible.
REITs – REGULATORY FRAMEWORK AND PROCESS: -REITs are established as trusts under the Indian Trust Act, 1882 and regulated under the SEBI (Real Estate Investment Trusts) Regulations, 2014. The regulatory/ institutional structure is largely similar to that of InvITs except for key differentiations in – Class of assets, eligibility/investment conditions under SEBI (REIT) Regulations, 2014 and a common intermediary for management of assets and investment viz. Manager (as against separate investment and project manager under InvIT – among others.
Salient features of SEBI REITs Regulations 2014
Sponsor– Eligibility Each sponsor to hold not less than five per cent. of the number of units
of REIT on post-initial offer basis. Minimum net worth of Rs. 100 crores, on a collective basis and Each sponsor should have at least Rs. 20 crores of net worth. At least 5 years of experience as developer and two projects completed
Investment/ Asset Not less than 80% of REIT value has to be invested in “completed and rent/ income generating properties” (directly or through Holdco).No more than 20% of REIT value may be invested in under-construction projects/ debt securities/ equity investment in real estate companies/government securities/ money-market instrument/ Transfer of Development rights acquired for utilization in a particular project/unutilised Floor-Space-Index (FSI).Not less than 51% of the consolidated revenues of the REIT, Holdco and SPV shall be from rental, leasing and letting real estate assets or any other income incidental to the leasing of such assets
Borrowings A listed REIT may issue debt securities as long as the consolidated borrowings and deferred payments [of REIT, Holdco and SPV], net of cash and cash equivalents does not exceed 49% of the asset value. In case of borrowings + deferred payment exceeding 25%, the REIT has to be rated AAA
The steps in a typical InvITs transaction are represented in the figure below: –
National Infrastructure Pipeline announced in 2019 will unleash the true strength of the Indian Economy. The various asset of different ministries up for Monetisation through different models will be a great game changer in attracting domestic and foreign capital into the Indian Economy. The asset recycling model will bring in efficiency and capital investments into various key sectors of the economy.
The beauty of various Monetisation models and instruments are such that even a passive investor can also aspire to invest in infrastructural assets and it will give huge Philip to the secondary market and capital market as a whole.
We conclude this by a small recommendation to all the aspiring investors that “India has reached an inflection point and its only up up and above is the trajectory for Indian economy, today the assets are not valued at its full potential because of early ramp up stage hence it is apt and ripe to put money in INDIA and be a patient investor”.