SEBI Relaxes Borrowing Rules For InvITs With High Leverage

The Securities and Exchange Board of India (SEBI) has widened the permitted use of fresh borrowings by Infrastructure Investment Trusts (InvITs) whose net debt exceeds 49% of asset value.

The new rules took effect immediately. SEBI issued a circular on Friday to enforce them. These changes follow the amendments made to InvIT regulations in April this year.

What Changes Under The New Framework

Under the revised norms, InvITs can now use additional borrowings above the 49% leverage threshold for capital expenditure aimed at improving asset performance or expanding capacity.

SEBI has also allowed these borrowings to be used for major maintenance expenses related to road projects. The regulator clarified that major maintenance refers to non-routine expenditure carried out under obligations specified in concession agreements.

The move is expected to benefit road-focused InvITs that periodically require large capital outlays for repairs, upgrades and maintenance work.

Refinancing Rules Also Relaxed

The regulator has additionally permitted refinancing of existing debt by InvITs, its special purpose vehicles (SPVs) or holding companies, subject to certain conditions.

SEBI said the original borrowing being refinanced must have been used only for purposes already allowed under InvIT regulations. The refinancing will be limited strictly to the principal amount of the loan.

Accumulated interest, penalties, fees or any other charges cannot be refinanced under the revised framework.

The changes are aimed at improving financial flexibility for infrastructure trusts at a time when large infrastructure projects continue to face high funding requirements.

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New Clarity On SPVs After Project Completion

In a separate clarification, SEBI said a special purpose vehicle holding an infrastructure project will continue to qualify as an SPV even after the concession agreement expires, provided certain conditions are met.

The investment manager of the InvIT will have one year to either exit the investment through sale, liquidation, winding up or merger, or acquire a new infrastructure asset within the same SPV.

The one-year period will begin after completion or termination of concession agreements, closure of pending litigation or tax matters, and completion of defect liability obligations.

Until the investment is exited or a new project is added, InvITs will need to provide detailed disclosures in annual reports covering assets, liabilities, debt obligations, contingent liabilities and proposed exit timelines.

The latest relaxations come as infrastructure investment trusts continue to play a larger role in funding roads, transmission networks and other large public infrastructure projects in India.

Sources:

The Hindu Business Line

NDTV