The move could help bring more funds to InvITs and REITs, the hybrid models through which the government is attempting to channelise money into the cash-starved sector.
MUMBAI: The Insurance Regulatory and Development Authority (IRDA) is planning to allow insurance companies to invest in the debt securities issued by any pooled investment vehicles, including infrastructure and real estate investment trusts, three people with direct knowledge of the matter told ET.
The move could help bring more funds to infrastructure via infrastructure investment trusts (InvITs) and real estate investment trusts (REITs), the hybrid models through which the government is attempting to channelise money into the cash-starved sector.
“The regulator is waiting for the Finance Bill to get passed by Parliament (to take a final decision) as it has already started discussing the matter internally,” said one of the people.
Internally, IRDA is holding discussions with the finance ministry and other stakeholders. The final decision would be made soon after the passing of the Finance Bill, the person added.
The regulator did not respond to ET’s email seeking comment till the time of going to press on Monday.
The Finance Bill proposes to allow InvITs and REITs to borrow and issue debt securities or bonds. Also, it proposes an amendment to the Securities Contracts Act, which will permit holders of such bonds to approach the National Company Law Tribunal in case of any default. Those bondholders will also be treated with first charge on the InvIT assets, which means they will get priority in case of liquidation.
“This move could be a game-changer as the InvIT/REIT industry can tap a huge pool of insurance money,” Bajaj Consultants director Shivam Bajaj said. “Borrowers too will be more responsible in servicing their debt obligations failing which they would be dragged to the NCLT with the fear of losing assets.”
India’s insurance industry is projected to be managing Rs 35 lakh crore of assets at the end of this financial year. Bond issuers seek insurance money since it comes for the long term.
InvITs and REITs could benefit from the move. For example, an InvIT or REIT can sell bonds at 8-9% depending on the prevalent rating grade and the interest rate in the market. This money can be used to repay any other loan taken through a special purpose vehicle under the InvIT/REIT structure, which will borrow the money at 4-5 percentage points more from the main InvIT/REIT structure. The additional interest thus earned can be distributed among the unit holders of the InvIT or REIT.
More than three years ago, India Grid Trust had become the first listed InvIT, with a triple-A rating by Crisil. Since then the market has expanded but mostly through unlisted entities.
There are seven InvITs and three REITs now. These REITs and InvITs cumulatively have more than Rs 2 lakh crore worth of assets under management.
https://realty.economictimes.indiatimes.com/news/industry/regulator-irda-plans-to-permit-insurers-to-invest-in-invit-reit-bonds/81276558
