CS Professional · Strategic Management and Corporate Finance

Infrastructure Investment Trusts: formula sheet

Full chapter guide

Key formulas

InvIT in one line: InvIT = trust + pooled investor money + infrastructure assets + units + distributions; Use this as the skeleton of your definition.
Governing regulation: SEBI (Infrastructure Investment Trusts) Regulations, 2014; Name it exactly. Do not confuse it with the REIT regulations.
Comparison anchor: InvIT: infrastructure assets | REIT: real estate assets | Mutual fund: market securities; Start every comparison answer with the underlying asset.
Parties: Trustee, Sponsor, Investment Manager, Project Manager; Know these four for any structure question.
Sponsor: Sponsor = entity that sets up the InvIT and is designated as sponsor; Must meet eligibility and holding conditions in the regulations. Check the exact thresholds in the latest regulation text, as they have been amended.
Trustee: Trustee = SEBI-registered debenture trustee, not an associate of sponsor or investment manager, holds assets for unitholders; Signs the investment management agreement and oversees the manager's compliance. Independence from sponsor and manager is the key condition.
Investment manager: Investment manager = manages assets and investments, makes disclosures, appoints valuer and auditor, ensures distributions; Acts under the investment management agreement with the trustee and discloses its fees.
Project manager: Project manager = ensures completion of an under-construction project, or operation and maintenance of a completed one; Designated in the offer document. It is accountable for the project, not for running the InvIT.
Distribution rule: Distribution of net distributable cash flows: at least 90%; The investment manager must ensure distribution to unitholders at this minimum. Confirm the level of the rule for the structure you are asked about.
Minimum subscription (public initial offer): Subscribed amount ≥ minimum subscription required by the regulations (as a % of the offer size); A public initial offer must reach the minimum subscription set by the regulations and the offer document. If it is not reached, units cannot be allotted and the application money must be refunded. Use the percentage given in the question or in the latest SEBI text. Do not assume a figure from REIT or other issue rules.
Public InvIT initial offer thresholds: InvIT assets ≥ ₹500 crore; initial offer size ≥ ₹250 crore; These are the size conditions for a public initial offer under the SEBI InvIT Regulations as amended. A public offer also has public holding and investor-spread conditions. State those in words unless the question gives figures.
Distribution rule: Distribution ≥ 90% of net distributable cash flows; Applies to both public and private InvITs. Frequency and detail follow the regulations.
Borrowing limit for a public InvIT: Consolidated borrowings and deferred payments ≤ 70% of value of InvIT assets; Above 25% of asset value, both a credit rating of AAA or equivalent and unitholder approval are required. The overall cap is 70% under the current rules. Check the exact conditions, including the approval threshold, in the latest SEBI text.
Listing difference: Public InvIT: listing mandatory. Private InvIT: listing optional; This is the single most-tested contrast.
Completed-asset test (public InvIT): Minimum in completed and revenue-generating projects = 80% × value of InvIT assets; The balance, up to 20%, can go only into the permitted categories, such as under-construction projects and the other permitted investments. Under-construction projects also have their own cap. Value means the value of InvIT assets as defined in the regulations.
Net borrowing ratio: Net borrowing % = (Consolidated borrowings + deferred payments − cash and cash equivalents) ÷ Value of InvIT assets × 100; Computed on a consolidated basis, including holdcos and SPVs. Compare the result with 25%, 49% and the 70% ceiling.
Borrowing thresholds: Up to 25%: no rating or approval. Above 25% up to 49%: AAA rating and unitholder approval. Above 49% up to 70%: additional conditions in the regulations must be met. Above 70%: not allowed; The unitholder approval is by more than 50% by value. Quote each band with its conditions attached.
SPV holding: InvIT holding in SPV ≥ 51% (general rule); A lower holding is allowed where a concession agreement, law or government requires it. Mention the exception in answers.
Minimum distribution by InvIT: Minimum distribution to unitholders = 90% × NDCF of the InvIT; Not less than 90%. Distributing more is allowed. Public InvIT: at least once every six months. Private InvIT: at least once a year.
Minimum distribution by SPV to InvIT: Minimum distribution by SPV = 90% × NDCF of the SPV; Subject to the Companies Act, 2013. Applies to the SPV's distribution to the InvIT, which is the first tier of cash flow.
Distribution per unit: Distribution per unit = Total distribution ÷ Number of units outstanding; Use this for numerical questions on yield per unit.
NAV per unit: NAV per unit = (Value of assets as per valuation − Liabilities) ÷ Number of units; Based on the independent valuer's figures. Use the assets and liabilities given in the question.
Core rule on related party dealings: Related party transaction = arm's length + disclosure + unitholder approval where required; Interested related parties do not vote on that matter. Verify the current thresholds in the regulations before quoting them.

Quick revision

An InvIT is a trust that holds infrastructure assets and distributes cash flows to unitholders.
It is governed by the SEBI (Infrastructure Investment Trusts) Regulations, 2014.
An InvIT must be registered with SEBI before it raises funds.
The parties are the trustee, sponsor, investment manager and project manager; know each role.
Know who appoints whom and who is responsible for which compliance.
Public InvITs raise funds from the public and are listed; private InvITs raise funds through private placement.
Unitholders hold units and have rights such as voting on specified matters.
Investment and asset holding rules limit where the trust may deploy funds; learn the conditions before the numbers.
Borrowing is subject to limits and conditions, which vary with factors such as credit rating and approval; check the current text.
Assets are valued by a registered valuer, and valuation reports support disclosures.
Distribution of net cash flows to unitholders is a regulated obligation with set timelines.
Related party transactions and key events need specific disclosures and, in some cases, unitholder approval.

Common mistakes

Calling an InvIT a company or a mutual fund scheme. Fix: Say it is a trust that holds infrastructure assets, with units that can be listed.
Mixing up the REIT and InvIT regulations. Fix: Link REIT to real estate and InvIT to infrastructure, and name each regulation correctly.
Treating the sponsor and the investment manager as the same party. Fix: Sponsor sets up the InvIT and holds a stake. Investment manager manages the assets and investments under an agreement with the trustee. The functions are different even when the group is the same.
Saying the investment manager owns the InvIT assets. Fix: The trustee holds the assets in trust for unitholders. The manager only manages them.
Saying all InvITs must be listed Fix: Only public InvIT units must be listed. Private InvIT listing is optional.
Applying the minimum subscription percentage to the wrong base Fix: Compute the required percentage of the offer size and compare it with the amount actually subscribed.
Applying the 80% rule to total borrowings or to the SPV's own assets instead of the InvIT's asset value. Fix: Remember that 80% is a floor on completed, revenue-generating assets of a public InvIT. Borrowing is tested separately on net consolidated borrowings against the 25% and 49% thresholds.
Ignoring cash when computing the borrowing ratio. Fix: Deduct cash and cash equivalents. Also add deferred payments to borrowings. Use the consolidated figure.
Writing that the InvIT must distribute exactly 90% of NDCF. Fix: Write 'at least 90%' or 'not less than 90%'. A higher distribution is permitted.
Applying the 90% rule only at the InvIT level and ignoring the SPV tier. Fix: Show both tiers: the SPV distributes at least 90% of its NDCF to the InvIT, and the InvIT distributes at least 90% of its own NDCF to unitholders.

Exam tips

Write definition, need, features and comparison in that order. It earns marks at each stage.
Use a short table-like list in the comparison, with the same points for both entities.
Always cite the SEBI (Infrastructure Investment Trusts) Regulations, 2014 by name.
Give one practical example such as a road or power transmission project to show application.
Do not add numbers or limits unless you are sure. Those belong to the regulations topics.
Start every answer with a one-line role for each of the four parties. It earns marks even if the case analysis is thin.
In case questions, name the responsible party first, then the duty breached, then the remedy.
Always mention the trustee's independence and its supervisory role over the investment manager.