On 14 August, the Securities and Exchange Board of India (SEBI) approved a change that lets Infrastructure Investment Trusts (InvITs) add debt‑funded payments for major maintenance of road projects to their Net Distributable Cash Flow (NDCF).
The new framework applies at both the holding company level and the special purpose vehicle (SPV) or trust level, ensuring consistency across the entire investment structure.
SEBI said the move follows industry feedback, recommendations from the Hybrid Securities Advisory Committee, and a public consultation, aiming to give InvITs more flexibility.
Under the rule, an InvIT can include payments financed through external borrowing in its NDCF calculation. This allows large maintenance costs to be covered without draining operating cash.
Before using the provision, the InvIT must obtain unitholder approval. At least 60 percent of the votes cast on the resolution must be in favour, as per the InvIT Regulations.
Approval can be granted either for a one‑time use of existing debt or for a new borrowing that covers the whole project life cycle, or for a specific major maintenance item. Any borrowing beyond the approved amount requires fresh approval.
The notice to unitholders must list the projects, the types of maintenance expenses, year‑wise and project‑wise estimates, and explain how the borrowing will affect future growth.
Statutory auditors must certify that the expenditure complies with the concession agreement and that it was funded through external borrowing. Auditors may use an independent expert for the certification.
InvITs will separately disclose major maintenance borrowing in their financial statements and quarterly, half‑yearly, and annual reports. The Net Borrowing Ratio will show the amount and percentage of debt used for maintenance, while the NDCF statement will detail total and outstanding debt for such expenses.
SEBI clarified that borrowing for maintenance will increase the overall debt of an InvIT and reduce the headroom available for future expansion. This could lead to higher distributions in the years before the maintenance is paid, but lower payouts later when the debt is repaid.