IRB Infrastructure Will Be The First To List InvIT; Plans To Raise Up To Rs 5,000 Crore

Road builder IRB Infrastructure Developers Ltd. will launch India’s first initial public offering (IPO) for an infrastructure investment trust (InvIT), an investment option that can help unlock value and provide funding for infrastructure projects.

The company intends to raise up to Rs 5,040 crore through the IPO of its IRB InvIT Fund Ltd., which opens for subscription on May 3, said Virendra Mhaiskar, chairman and managing director of IRB Infrastructure, in an interview to BloombergQuint.

InvITs are mutual-fund like instruments that pool in infrastructure projects to raise funds from investors. Other infrastructure companies, including Sterlite Power Grid Ventures Ltd., Reliance Infrastructure Ltd. and MEP Infrastructure Developers Ltd., have also filed for listing their InvITs.

IRB Infrastructure has set a price band of Rs 100-102 per share. While the larger chunk of the issue will be in fresh equity, existing promoters IRB Infra Developers and its arms – Modern Road Makers, Aryan Toll Road, ATR Infra and Ideal Road Builders –will also make an offer for sale.

The InvIT had a debt burden of Rs 5,144 crore as of December 31, 2016, according to the draft red herring prospectus. This amount will fall sharply to Rs 1,794 crore as the company plans to use majority of the IPO proceeds to pare debt. The debt-to-equity ratio will also fall below 1 from the current level of 2.8 times.

The company plans to use the proceeds on six of its toll road assets in Maharashtra, Gujarat, Rajasthan, Karnataka and Tamil Nadu, all housed under the InvIT and operational. They collectively earned Rs 1,003.8 crore in financial year 2015-16, according to the draft prospectus.

These assets have delivered a compounded annual growth rate (CAGR) of 11.4 percent, said Mhaiskar, “so 9.5 percent CAGR is what we have assumed as against the 11.5 percent”.

The company has also estimated a cash flow of Rs 587.3 crore in the current financial year from the six toll roads. 90 percent of which will be distributed among the InvIT’s shareholders.

IRB Infrastructure is open to transferring some more of its 22 road projects to InvIT, said Mhaiskar.

The fund had filed its draft red herring prospectus in September 2016 following which it had received an observation from the Securities and Exchanges Board of India (SEBI) in February 2017, which is a must for any entity to launch a public offer.

Key highlights:

• IRB Infra aims to raise at least Rs 4,300 crore
• The issue will constitute at least 25 percent of the total outstanding units on a post-issue basis
• The issue size of the InvIT is estimated at Rs 4,300-5,032 crore (at the lower and upper price bands of Rs 100 and Rs 102, respectively)
• Bids open on May 3 and close on May 5
• The sponsor (IRB Infrastructure) shall hold not less than 15 percent of the total units in the trust on a post-issue basis, for a period of not less than three years