India poised to unlock $9 billion for investing in roads and power

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A decade-long wait by India’s cash-hungry real estate and infrastructure developers may finally be nearing an end.

Birla Sun Life Asset Management Co. estimates that real estate and infrastructure trusts will raise as much as Rs60,000 crore ($9 billion) this year as India rolls out the much-anticipated investment products mooted in 2007.

Sterlite Power Transmission Ltd. and IRB Infrastructure Developers Ltd. are racing to be the first to launch an infrastructure investment trust, people with knowledge of the matter said, after the regulator allowed domestic funds to put money into assets such as toll roads, airports and office blocks.

India is seeking to replicate the success of similar trusts in the US, Singapore and Australia, where investors have flocked to assets that offer higher yields as those on global bonds languished near record lows.

“There is a hunger for yield in India right now,” said Maneesh Dangi, Mumbai-based co-chief investment officer at Birla Sun Life Asset Management, which oversees Rs1,700 crore.

Investors will be looking to redeploy assets in the next 12 to 18 months as up to Rs1,700 crore of fixed-rate bank deposits mature, he said, adding that mutual funds could become a large supplier of capital for Real Estate Investment Trust (Reit) and InvITs.

The Securities and Exchange Board of India (Sebi) drafted norms for investment trusts in 2007 and finalized them in September 2014.

The regulator and government have since eased rules as the market failed to take off. Last month, Sebi cleared a major roadblock by allowing domestic mutual funds to invest, though some details still need to be spelled out.

Sebi is expected to issue clarifications to ensure the market’s viability this quarter, said one of the people. The Irdai will finalize rules for local insurance companies to invest in Reits and InvITs in its upcoming board meeting, said people with knowledge of the matter.

Irdai chairman T.S. Vijayan and a Sebi spokesman didn’t immediately respond to e-mailed questions.

Since the first US Reit was approved in the 1960s, the global industry has swelled to about $1.7 trillion, according to a 2016 Reit report from consulting firm EY.

Growth has accelerated in recent years as investors flocked to the offerings, with the market capitalisation of non-US Reits more than doubling since 2010, the report shows.

Reits should offer yields of about 8%, though much depends on asset quality and the manager, Anuj Puri, the country head for India at broker Jones Lang LaSalle Inc., said in an e-mail.

“We expect investors in InvIT would be primarily foreign institutional investors, who are looking for a long-term instrument that provides them a decent spread over government bond yields,” he wrote.

The need for alternative funding comes as bank loans to industry, including advances for development of infrastructure, contracted 4.3% in the year to 23 December to about Rs2,600 crore, according to data from the Reserve Bank of India.

Apart from IRB Infrastructure and Sterlite Power’s proposed offerings, Sebi has four applications for InvITs and one for a Reit from Embassy Office Park.

The IRB InvIT Fund is planning to raise about Rs5,000 crore to Rs5,500 crore through an initial public offer that will launch in the next couple of months, according to people with knowledge of the matter.