InvITs becoming prime vehicle for forging M&A activity in roads and highways

According to an EY estimate, AUM (asset under management) of road InvITs are projected to grow by 68%, reaching ₹3.2 trillion by end of FY26, compared with ₹1.9 trillion in September 2024. 

Existing InvITs have an acquisition pipeline of ₹55,000-60,000 crore by FY26, with an additional ₹50,000-55,000 crore expected from asset monetization by NHAI and road developers.

With the rising uptake of these investment trusts or InvITs, the sector has become a focal point for private investment and asset monetization.

“InvITs play a key role in attracting investment as these trusts as an asset class provide for a diversified portfolio of cash yielding assets which reduces risks pertaining to revenue realization, liquidity, debt defaults and force majeure. Also, InvITs are especially attractive to investors due to the direct distribution mechanism via dividends, interest payments and capital reduction. Further, InvITs are also tax efficient structures as on-lending from the InvIT to underlying SPVs (special purpose vehicle) removes cash traps and provides tax advantage, while cash flows at the InvIT level are tax exempt,” said Srishti Ahuja, investment banking partner (infrastructure), EY India.

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“Additionally, being governed by Sebi (Securities and Exchange Board of India), these trusts become an attractive asset class for medium to long-term investors due to the transparency and ethical practices ensured by Sebi and easier entry and exit clauses for InvITs introduced by it,” she added.

M&A activity

M&A activity in roads and highways has seen a very active phase of growth over the last decade. Between 2014 and 2024 (till October), the Indian road sector witnessed over 100 asset sales, with a cumulative deal value exceeding ₹1.7 trillion underscoring investor confidence in Indian road assets and the high-yield investment opportunities the sector has provided.

“M&A activity has remained buoyant in the past 24 months; a total of ₹41,000 crore worth of road assets changed hands in the past 24 months with asset mix comprising toll, HAM (hybrid annuity model) and annuity projects. A total of 53 assets were sold in the past 24 months with InvITs continuing to lead the M&A activity. The strong performance shown by the toll assets post-covid and a healthy pipeline of HAM projects is expected to support the M&A activity in the near term. As seen in the past, InvITs are expected to lead the M&A activity in the road sector,” said Vinay Kumar G., sector head, corporate ratings, ICRA.

InvITs are able to attract the patient capital required for asset acquisition and raise debt at competitive rates helping them to lead in M&A activity in the road sector. The key investors for the road InvITs are marquee pension funds like CPPIB, CDPQ, OMERS, sovereign wealth funds like ADIA, PIF, GIC and reputed investors like BCI, Mubadala, AIIB, IFC etc. Given the better access to capital and acceptance of InvIT as an instrument in the Indian market, they are expected to play a crucial role in meeting the financing gap in the national infrastructure pipeline and M&A activity.

Key deals

In the past 24 months, some of the major M&A deals include Highway Infrastructure Trust taking over a HAM project from HG Infra for ₹1,394 crore. The trust also took over two other HAM and toll projects from earlier sponsors PNC Infratech and Macquarie for ₹9,000 crore and ₹3,000 crore respectively. Similarly, Shrem InvIT took over a HAM project from Apco Infratech for ₹3,867 crore while Indian Highways Concession Trust took over a toll project for ₹5,718 crore from Ashoka Concessions Ltd.

“In light of this shifting of government’s focus from HAM to BOT (build, operate, transfer for toll roads), developers will need to increase participation in construction of toll roads, for which they will need higher amounts of liquidity (as against constructing HAM roads where 40% of the development cost is borne by NHAI/Concessioning Authority upfront). Here, InvITs can allow developers to deleverage and release locked-in capital while also making a positive return on investment,” Ahuja said.

Sovereign wealth and pension funds have increasingly utilized the InvIT route to invest in road infrastructure. In Sep 2024, OMERS acquired a 13.48% stake in Interise InvIT from Allianz Capital. Meanwhile, Larsen & Toubro’s pension funds and institutional investors acquired an 8.03% stake in Cube Highways Trust for ₹1,243 crore.

Among other recent deals in the road sector, IRB Infrastructure Trust submitted a non-binding offer to IRB InvIT to sell its five toll road assets valued at ₹15,000 crore in Nov 2024.

Montecarlo Ltd disclosed plans to divest nine HAM assets valued at ₹3,025 crore in Oct 2024.

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In Sep 2024, the Highway Infrastructure Trust acquired TOT-16 for ₹6,661 crore, while Bharat Highways InvIT acquired GR Aligarh Kanpur Highway Private Ltd for ₹98,000 crore.

In Oct 2024, Actis expanded its portfolio by acquiring the Vindhyachal Expressway for ₹775 crore. Prior to this in Feb 2024, Actis had acquired four HAM assets from Patel Infrastructure for ₹1,500 crore, including two under-construction projects.