We are delighted to share our most recent and comprehensive research paper discussing at length the legal, tax, regulatory, commercial and strategic issues concerning the setting up of India focussed funds.
Over the past few years, the investment funds industry has been the subject of a series of legislative and regulatory interventions designed variously to protect investor interests as well as to enlarge the scope of investment activity. From an Indian fund formation perspective, this is evidenced from the introduction of codes of conduct for various stakeholders, the enhanced exposure limits for domestic institutional LPs and the much-anticipated roll out of the concept of accredited investors. Similarly, the Government of India has announced a slew of measures to incentivise sponsors to set up funds in GIFT City with a view to developing GIFT City as a reputable international financial services centre.
Special situations and private credit funds have been increasingly looking at the high yield Indian market. With banks facing liquidity and risk issues, alternate capital with customised solutions seem attractive. Structured commonly through collateralised redeemable bonds with pay-outs deferred until maturity, these bonds may have equity kickers built-in as well, in the form of redemption premium linked to any variable, such as underlying equity share price or cashflows. While offshore capital is interested, currency, tax withholdings, enforceability and regulatory risks dampen the return profile on a risk-adjusted dollar return basis.
In recent times, there has been a constant push towards ‘onshoring’ of credit structures. Offshore funds are setting up NBFCs and AIFs which pool offshore capital and deploy domestically. A debate often is which one to choose? We analyse the merits of each domestic credit vehicle from various perspectives viz. growth v yield vehicle, capital raise, monetisation and regulatory fetters. We also analyse structures for foreign investors to acquire standard and sub-standard loan portfolios.
Infrastructure has been the highest capital receiver in 2021, and InvITs continue to be the most favoured investment vehicle for sponsors and global investors alike. InvITs have received >USD 10 billion of investments in the last couple of years, with investments from some of the largest fund houses. The roads regulator of India (NHAI) has also launched its maiden InvIT – with an EV of >USD 1.1bn and participation from large pension funds (CPPIB and OTPP). KKR has again sponsored another InvIT in the renewables space (Virescent Infrastructure) – raising capital from a clutch of investors led by Alberta Investment Management Corporation.
As InvITs flourish, please click below to download our most recent white paper on InvITs which discusses all the key commercial, legal, regulatory and tax considerations relevant to InvITs and the most recent developments in the InvIT regime including the following. read more…
As infrastructure takes center-stage in the Indian growth story, InvITs are increasingly seen as tax optimized monetization vehicles. InvITs, once introduced as a bond proxies, are now no longer mere annuity products. Private listed and unlisted InvITs, driven by their ability to invest in developmental assets and governed by a lighter set of regulations are drawing keen interest from institutional investors.
Unlisted InvITs, armed with the same tax incentives as a listed InvIT, emerged as the clear favorites – until recently when the SEBI required unlisted InvITs to have a diversified set of unitholders and a public float. A public float for unlisted InvITs was not quite as expected, and the perception that unlisted InvITs are no longer the favorite seemed to prevail. Sponsors moved away from unlisted InvITs to private listed InvITs to be safe, yet curiously asking – whats the right way to go?
We discuss the regulatory approach to InvITs as we have seen them evolve over the years, and seen the bell-curve of unlisted InvITs – from being the poster-boys of the Indian infrastructure story to now perceived rejects.
We regularly write on Fund Formation, PE, PIPE and M&A, Structured Finance, Fund Litigation, Governance and Stewardship. Stay tuned.