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Infrastructure companies continue to be saddled with high debt on account of delays in project completion. Infrastructure Investment Trusts (InvIT) seems to have come as a big relief for the them. InvITs enables infrastructure companies to exit or dilute their stake in the completed projects. Take the instance of a road project. A company named 'X' had been awarded the project to build the Mumbai-Pune expressway. Now, once the roads were built, the company had to wait for significant period of time to recover the costs in the form of tolls. However, with InvITs, the parent company can easily exit the project and cash in on his stake. The cash generated can be utilized by the infrastructure company to invest in new projects as well as to repay debt.
The stretched balance sheets of infra companies have led to a sharp rise in stressed advances for the banking industry.
As stated in the RBI Financial Stability Report released in December 2015:
Five sub-sectors viz. mining, iron & steel, textiles, infrastructure and aviation, which together constituted 24.2 per cent of the total advances of scheduled commercial banks as of June 2015, contributed to 53.0 per cent of the total stressed advances.
What this means that one-fourth of the advances accounted for more than a majority of total stressed assets of the banks. But with Invits, infra companies will be able to repay debt and free up resources for future projects. This in-turn will boost their profitability on the back of lower finance costs. Further, it will also help bring down the bad loans of the banking industry.
IRB Infrastructure Developers will be the first company to get the regulatory approval to tap investors fund through the InvIT route. However, not just IRB but others in the infra sector such as GMR Infrastructure Ltd, IL&FS Transportation Networks Ltd and engineering giant Larsen and Toubro Ltd (L&T) have also lined up for monetizing their projects.
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