India's investment trusts to expand debt fundraising as yields drop, analysts say
The real estate investment trusts (REIT) and infrastructure investment trusts (InvIT) raised over 178 billion rupees ($2.07 billion) in January-June, compared with 56 billion rupees in the same period last year, according to data aggregator Prime Database.
"Bonds offer a lower cost of capital compared to traditional bank financing, especially for highly rated trusts with stable, long-term cash flows," Arka Mookerjee, partner at JSA Advocates and Solicitors, which provides legal advice to corporates.
"The predictable income profiles of REITs and InvITs make them well-suited to debt financing, attracting institutional investors seeking yield-bearing, asset-backed instruments."
Corporate bond yields have tumbled over the last few months, as the central bank infused liquidity and slashed interest rates by 100 basis points, while banks have lagged in lowering their lending rates.
Embassy Office Parks REIT, IndiGrid Infrastructure Trust, Cube Highways Trust and Nexus Select Trust are among the firms that have tapped the bond market. Embassy REIT is planning another bond issue, Reuters reported last week, while others are also in early talks.
Bonds typically have fewer restrictions than bank loans, allowing REITs to use the fund across multiple properties within the portfolio, said Lata Pillai, India senior managing director and head of capital markets, JLL, a global real estate services firm.
The trusts, which need to disburse at least 90% of net distributable cash flows to unit holders, say cheaper funding allows them to provide better returns.
Bond fundraising provides clarity to these trusts on planning their finances, while top credit ratings attract marquee investors such as mutual funds and insurers.
"The AAA-rated structure gives greater credibility, visibility and better pricing," said Krishnan Iyer, chief executive officer at NDR InvIT, adding they also offer resilience to market volatility.
With infrastructure and real estate sectors gaining momentum, investors see REITs and InvITs as a compelling blend of fixed-income stability and long-term growth, said Suresh Darak, founder of Bondbazaar, an online bond trading platform.
($1 = 86.1700 Indian rupees)
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