Road InvIT AUM will double in the upcoming fiscal year: Crisil Report

According to Crisil, the amount of assets under management (AUM) for infrastructure investment trusts (InvITs) in the Indian road sector will nearly double from the present Rs. 1.4 trillion (US$ 17 billion) by March 2025.

The increasing number of hybrid annuity model (HAM) projects inside InvITs is the reason for this anticipated growth. Strong credit profiles will be maintained since the steady cash flow from an increasing number of HAM projects will offset any minor increase in borrowing.

Crisil examined nine road InvITs, totalling over 9,000 km across 105 assets, and found 50,000 km of road projects ready for monetisation. Since 2016, the National Highways Authority of India (NHAI) has favoured the HAM approach for public-private partnership projects. With many of these projects now completed, engineering, procurement, and construction firms are anticipated to seek their monetisation.

“The share of hybrid annuity model (HAM) projects in InvIT AUM is expected to increase to 20-25% by March 2025 from 7% currently,” Mr. Mohit Makhija, Senior Director of Crisil Ratings said.

The percentage of HAM assets in InvITs is expected to rise, although 60% “The share of hybrid annuity model (HAM) projects in InvIT AUM is expected to increase to 20-25% by March 2025 from 7% currently. of the incremental AUM of the InvITs will still come from monetised toll projects from NHAI and private companies. A balanced combination of HAM and toll assets strengthens the business risk profiles of InvITs, according to the Crisil analysis.

According to Mr. Anand Kulkarni, Director of Crisil Ratings, “The consolidated loan to value ratio of road InvITs, which is an indicator of leverage, is currently at ~41%.”

In addition to price and interest rate indexation, HAM projects offer the benefit of consistent revenue, which strengthens the InvITs' financial stability. The counterparty in the majority of monetarily funded HAM projects is NHAI, whose consistent annuity payments support the monetisation process. On the other hand, toll roads provide protection against inflation and the chance to capitalise on India's economic development.

Over 60% of the equity invested in road InvITs comes from foreign investors, mostly from patient capital sources like pension and sovereign wealth funds, demonstrating the continued strength of investor interest in InvITs.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.