Finance Minister Nirmala Seetharaman, as part of the Union Budget 2020-21, announced that an amendment will be made to help these trusts raise debt funds from Foreign Portfolio Investors (REITs).
Global institutional investors and sponsors of REITs and InvITs have sought government support to enable REITs and InvITs to raise debt from insurance companies and REITs.
“Globally, institutional investors are among the largest investors in corporate fiduciary debt, as the credit and risk profile meets their liability management needs. This announcement allowing REITs to invest in REIT and InvIT debt securities will provide the long-awaited impetus for these institutional investors to participate in the debt financing of these instruments,” said Sigrid Zialcita, CEO of the Asia Pacific Real Estate Association (APREA).
Zialcita, on behalf of APREA, welcomed the proposal, which was also made in 2019, and pledged to provide the necessary inputs to ensure its implementation as soon as possible.
Despite the approval of the Ministry of Finance in the Union Budget 2019 for debt financing, these entities are still unable to access liquidity through this channel.
The budget also exempted dividends paid to REITs or InvITs from withholding tax (TDS).
“The proposal to exempt dividend payments on REITs and InvITs from TDS will play a key role in boosting global and domestic investor sentiment in the sector. This will give a huge boost to the real estate and infrastructure sector. … It will also help spur the creation of revenue-generating infrastructure like roads, railways and power transmission lines,” said Rajesh Narain Gupta, Managing Partner, SNG & Partners.
Since first listing three years ago, the market has grown rapidly to seven InvITs and three REITs in infrastructure assets such as roads, power transmission, commercial real estate and gas pipelines with a market capitalization of $18 billion.
InvITs and REITs have the potential to emerge as an important tool to meet India’s massive infrastructure financing needs. The depth of the debt market, a better understanding of operational and credit risks among investors and unitholders, and stable regulation are essential to achieve the expected growth.
REITs and InvITs can potentially raise up to Rs 8 lakh crore of capital for infrastructure construction in India over the next five financial years, a report has shown.
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Both avenues of fundraising are gaining popularity in India, following in the footsteps of the developed world and a deeper debt market where investors can discern risk and returns in infrastructure asset classes, and stable regulations will be essential to achieve this goal.
