IRB InvIT Fund IPO, India's First Infra Trust, Open Now: Should You Invest?

IRB InvIT Fund IPO, India's First Infra Trust, Open Now: Should You Invest?

The IRB InvIT Fund intends to own, operate and maintain a portfolio of six toll-road assets.

The initial public offer (IPO) of IRB infrastructure investment trust (InvIT) has been subscribed 62 per cent on Thursday, the second day of the issue, which closes on Friday (May 5). The institutional category was subscribed 49 per cent, while the category reserved for non-institutional investors attracted bids for 77 per cent shares. The IRB InvIT Fund IPO priced between Rs 100-Rs 102, plans to raise Rs 4,655 crore which comprises of fresh issue of 42.16 to 43 crore units and an offer for sale of Rs 3.48 crore units at the upper price band. The issue can be applied for a minimum of 10,000 shares and in multiples of 5,000 units thereof, which means minimum bid amount should be Rs 10 lakh. IRB InvIT Fund has raised Rs 2,095 crore from 28 anchor investors on Wednesday.

Here are five things to know about this issue:

1) IRB Infrastructure Developer, the sponsor of the issue, is one of the largest infrastructure development and construction companies in India in terms of net worth in the roads and highways sector according to the National Highways Authority of India (NHAI). The IRB infrastructure investment trust intends to own, operate and maintain a portfolio of six toll-road assets in the states of Maharashtra, Gujarat, Rajasthan, Karnataka and Tamil Nadu. These toll roads will be operated and maintained pursuant to concessions granted by the NHAI. Analysts say these road assets have growth potential due to expected growth in traffic volumes as a result of regional growth and expected increase in toll fees as a result of inflation adjustments.

2) The investment manager, IRB Infrastructure Pvt. Ltd. , on behalf of the trust intends to utilize Rs 4,200 crore out of the issue proceeds to repay/prepay loans of the project Special Purpose Vehicles (SPVs), which currently stands at nearly Rs 5,000 crore. The remaining amount will be used for general corporate purposes.

3) The Trustee shall make and shall ensure that the investment manager declares distributions not less than once every six months in each financial year. However, shareholders should note that there is no assurance or guarantee that distributions will be made in any amount or at all. The trust's first distribution after the date of the listing of the Units will be for the period from the date of the listing of the units to the date of 1st half-year financials. The trustee will make such distribution within 15 days of declaration of financial results.

4) The net distributable cash flows of the trust is substantially based on the cash flow to be generated from the underlying operations undertaken by the project SPVs. The cash flow will be received by the trust in the form of dividends and proceeds from capital reduction from the project SPVs, subject to the provisions of the Companies Act; and interest accrued on and principal repayment upon repayment of the debt availed by each of the Project.

5) For the nine months ending December 31, 2016, all the six projects of the fund had a toll revenue of Rs 867 crore on which it reported a net loss of Rs 13 crore. This compares with a net loss of Rs 76 crore on toll revenues of Rs 987 crore in FY16. According to domestic brokerage Angel Broking, the fund could return 25-30 per cent of enterprise value assuming a traffic growth of 3-5 per cent and discounting factor of around 11 per cent. "Reduction in cost of debt and increase in traffic growth will lead to further higher returns," the brokerage added. Angel Broking has a "Subscribe" rating on the issue. Decline in traffic volume, cost increase and trust's inability to make distributions to unit holders are key risks in the issue.

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