INFRASTRUCTURE INVESTMENT Risks, Returns and Perspectives

Sekar informed that of late, incrementally many developers have begun to focus on the fact that they are EPC contractors first. “And they are very different in the business model,” he said. “Take a project, quickly work on it and move on to the next project. That’s how the cycle goes. Unfortunately, these B-O-T projects are long term projects, and it will essentially help them clean-up their balance sheet for them. So now the banks which lend to these road projects will get more capital”.

Guidelines – do they need a change?

On the aspect of the need to make changes in the existing guidelines to alter the situation by SEBI, Sekar averred, “SEBI has been receptive and encouraging towards this. They believe it will be the cornerstone in terms of how the infrastructure sector will develop in the future. There have been tax-breaks in the last budget, there were announcements that if an InvIT holds more than 100% of SPV, then the SPV does not have to pay the dividend tax. The government, so far, has given a positive impetus. SEBI is working with a lot of developers. There is a new set of regulations meant for public investment which requires high level due diligence. There are a few nitty-gritties which developers like us would like to see. One among them is where InvITs are mandated to repatriate or push up 90% of the distributable profits or cash flows. However, it is still constrained by the Company’s Act which means for these infrastructure projects, there is a very high capital upfront, and therefore, a very high depreciation charge. Despite the fact that these projects are generating cash-flows, depreciation will not allow profitability. Because of the lack of profits initially and accumulation of the cumulative losses, the projects will not be able to repatriate the cash flows. So the cash will get stuck at the project level and will not help anybody. The project does not need incremental capital expenditure and investors will prefer to have the cash in their hands which will not be possible. This, of course, requires co-ordination with the government. This is something where we would like to see some change. There are, of course, smaller points in the guidelines on which SEBI is giving more clarity”.