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InvITs fail to impress, investment managers look for more certainty

LiveMint logoLiveMint 22-06-2017 Ami Shah

Mumbai: The two Infrastructure Investment Trust (InvITs) that have hit the bourses so far, haven’t been rewarding to the investors as yet, and investment managers say the risk reward proposition does not appear to be lucrative, and they would see how this product pans out, before taking the plunge.

InvITs are trusts that manage income-generating infrastructure assets, offering investors regular yields and a liquid way to invest in infrastructure projects.

IRB Infrastructure Developers Ltd’s infrastructure investment trust, IRB InvIT Fund listed on 18 May and closed 0.21% lower at Rs101.79 from its issue price of Rs102 on its listing day. Currently, it is down 3.3% to Rs98.64 from its issue price.

On 6 June, India Grid Trust listed the second InvIT to hit the bourses also closed 1.36% lower to Rs98.64 from its issue price of Rs100. Currently, it’s down 3.75% to Rs96.25 from its issue price.

After market hours on Wednesday, India Grid announced guidance on expected distribution per unit to unit holders in 2017-18. It said it expects to pay Rs3.6 per unit as on 30 October and Rs5.6 per unit on 30 April 2018.

“The issue with InvITs is that it is neither a full-fledged fixed income product, neither an equity one. It is difficult to take long-term risk, which is similar to equities, for such a product,” said Sampath Reddy, chief investment officer, Bajaj Allianz Life Insurance Co. Ltd.

“I would prefer equities for that kind of high risk. The risk-return proposition is not attractive for InvITs,” added Reddy, who said Bajaj Allianz does not intend to invest in InvIT for now, but added that if any upcoming InvIT is lucratively priced, they may look into the product.

In India, the government has tried to make InvITs attractive by offering lower taxes, mandate for high payout, cap and leverage and lower execution risk. However, the key risks attached to them cannot be ignored.

In a note on 20 June, Bank of America Merrill Lynch pointed that they are exposed to a few risks related to lack of clarity on tax regulations and penalty on breach of leverage guidelines, interest rates, related party transactions, cash flow timing mismatch, lack of liquidity cushion and operational risks.

“I think our call on staying away from these for now has been favourable. One needs to be certain about the cash flows, that will come in. Until then, it is difficult to take call to invest,” Soumendra Nath Lahiri, chief investment officer, L&T Investment Management Ltd. “We will continue to study these products and observe them more intently. It will take some time to see how things pan out for these products,” added Lahiri.

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