Sebi to relax InvIT cash flow distribution rules

Mumbai: The Securities and Exchange Board of India (Sebi) Monday proposed relaxing its framework for calculating net distributable cash flows (NDCF) for infrastructure investment trusts (InvITs), specifically for road-sector projects, by allowing certain debt-funded major maintenance expenses to be added back while computing distributable cash flows.

Currently, InvITs and their special purpose vehicles are prohibited from using external debt for distributions. As major maintenance expenses are treated as operating costs under accounting standards, they reduce operating cash flows and lower NDCF even when funded through debt.

The regulator said it received a request from Bharat InvITs Association (BIA) regarding treatment of debt availed by InvITs for incurring major maintenance expenses of road projects while calculating the NDCF.

The industry body told Sebi that major maintenance expenses, which are incurred to meet concession agreement obligations and preserve road quality, are typically financed through debt across the industry.

However, because such expenses cannot be capitalised under accounting rules, they are deducted from operating cash flows under the current NDCF framework, reducing distributable cash flows even when funded through borrowings.

“Most InvITs and their investors have considered that major maintenance expenses shall be funded through debt and a shift in approach would significantly increase the weighted average cost of capital for special purpose vehicle acquisitions. This may discourage the developers from monetising their projects through InvITs,” it said.

The regulator proposed allowing payments made towards major maintenance of road projects to be added back to NDCF to the extent they are financed through external borrowings.The relaxation would apply only to projects classified under the roads and bridges infrastructure sub-sector.