Sebi Expands Permitted Use of Borrowings for Highly Leveraged Infrastructure Investment Trusts

Sebi Widens Permitted Use of Fresh Borrowings by InvITs

The Securities and Exchange Board of India (Sebi) has made significant changes to the permitted use of fresh borrowings by Infrastructure Investment Trusts (InvITs) with net debt exceeding 49% of the value of their assets. The new rules, which took effect immediately, aim to provide greater flexibility to InvITs in managing their funding requirements.

As per the circular issued by Sebi, InvITs are now allowed to use fresh borrowings for capital expenditure to enhance asset performance or for capacity augmentation. Additionally, these funds can be used for major maintenance expenses related to road projects. Sebi clarified that major maintenance refers to non-routine expenditure incurred in line with obligations under concession agreements.

Sebi has also permitted the refinancing of debt by the InvIT, its special purpose vehicle (SPV), or holding company (Holdco), subject to certain conditions. The original debt being refinanced must have been used for purposes allowed under the regulations, and only the principal amount can be refinanced. Accrued interest, fees, and other charges will not be eligible for refinancing.

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The move follows amendments to the Sebi (Infrastructure Investment Trusts) Regulations notified in April, which allowed additional borrowing beyond the 49% threshold for purposes specified by the regulator.

In a separate circular, Sebi clarified that an SPV holding an infrastructure project will continue to be treated as an SPV even after the concession agreement or a similar agreement comes to an end, subject to certain conditions. The investment manager of the InvIT will have to either exit the investment in such SPV through sale, liquidation, winding up, or merger, or acquire a new infrastructure project in the same SPV within one year.

The one-year period will be counted from the later of the completion or termination of the concession agreement, conclusion of pending claims, litigation, or tax assessments, and related appeals, or completion of the defect liability period. Sebi said the time taken to obtain statutory or regulatory approvals for the sale, liquidation, winding up, or merger of the SPV will be excluded from this timeline.

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Until the investment is exited or a new project is acquired, InvITs will be required to provide detailed disclosures in their annual reports. These disclosures will include the value of investments in such SPVs, project details, status of vesting certificates, assets and liabilities, contingent liabilities, debt repayment schedules, adequacy of assets to meet liabilities, and the proposed exit strategy and timeline.

The new rules aim to provide greater transparency and accountability to InvITs, ensuring that they manage their debt and investments effectively.