SEBI Eyes NDCF Relief For Road InvITs By Easing Major Maintenance Expense Rules

The Securities and Exchange Board of India (SEBI) on Monday released a consultation paper proposing a significant change to the cash flow framework for Infrastructure Investment Trusts (InvITs) in the roads sector. The regulator has suggested allowing InvITs to add back payments made towards major maintenance (MM) expenses of road assets while computing Net Distributable Cash Flow (NDCF), but only to the extent such spending is funded through external debt.

The proposal is applicable exclusively to InvITs operating in the “Roads and Bridges” segment. Under the existing NDCF framework, borrowings cannot be used for distributions to unitholders. Since major maintenance expenses are treated as operating costs under accounting standards, they reduce operating cash flow and also directly lower the NDCF available for distribution.

Industry Representation Leads To Proposal

SEBI’s move follows representations from the Bharat InvITs Association (BIA), which argued that road maintenance expenses are periodic, mandatory under concession agreements, and often financed through debt. However, because these expenses cannot be capitalised, InvITs currently face a reduction in distributable cash despite raising debt to fund the expenditure.

According to SEBI’s proposal, the amount allowed to be added back in the NDCF calculation will be capped at the value funded through external borrowings. The regulator has also proposed strict governance conditions.

Any such adjustment will require unitholder approval with at least 60% of votes cast in favour. Approval may be taken either once for the full life cycle of the project or separately for specific maintenance expenditure. If additional borrowing beyond the approved amount is required, fresh approval would be mandatory.

Disclosure Requirements And Public Feedback Timeline

SEBI has also proposed enhanced disclosures, including project-wise and year-wise maintenance expense estimates, details of debt raised at the trust/SPV/HoldCo level, expense classification, and the potential impact on the InvIT’s future growth and leverage profile. Statutory auditors will also need to certify that the debt-funded payments qualify as major maintenance expenditure.

The market regulator has invited public comments on the proposal until 22 June 2026.

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Sources

Moneycontrol

Mint