Despite rising leverage, credit profiles to remain stable backed by high quality assets
Asset under management (AUM) of infrastructure investment trusts (InvITs) is expected to cross Rs 8 lakh crore by fiscal 2027 from ~Rs 6.3 lakh crore in fiscal 2025. The growth will primarily be driven by acquisition of assets by mature trusts1.
Although the growth in AUM will be accompanied by increase in leverage2 levels, credit profiles of InvITs will remain stable, supported by good quality of assets, adequate cash flows along with structural benefits of cash flow pooling and regulatory guardrails.
Asset addition is a key growth driver for InvITs, considering the finite life of infrastructure assets. The AUM addition of Rs 1.7-1.8 lakh crore over this fiscal and the next, will be marginally lower than ~Rs 2.0 lakh crore added in the past two fiscals. The roads sector is likely to account for ~80% of the incremental AUM, as in the past two fiscals. While sectors such as renewable energy, transmission and warehousing will contribute to the incremental AUM, their share could be low due to a combination of any of the following factors: high upfront leverage of assets that require significant deleveraging under InvITs, sufficient access to capital outside InvIT platforms and limited availability of operational assets.
Says Manish Gupta, Deputy Chief Ratings Officer, Crisil Ratings, "Mature trusts acquiring assets are expected to form 80-85% of the incremental AUM over two fiscals, compared with ~65% in the past two fiscals. Further, acquisitions typically increase leverage because the assets acquired generally have a higher proportion of debt. For instance, InvITs with a track record of 2-5 years have seen their leverage increase from 43% as of March 2023 to 47% as of March 2025 with rise in AUM due to acquisitions. With most InvITs attaining operational stability now, they are ripe for growth. Hence, overall leverage is expected to inch up to ~50% by fiscal 2027."
Even as the leverage is likely to increase, credit profiles are expected to be stable, supported by predictable cash flows, long asset life and diverse pool of assets. Addition of low-risk assets also enables InvITs to withstand higher leverage. For instance, adding assets with annuity nature of cash flows such as hybrid annuity model roads to a toll road trust or power transmission assets to a renewable trust can enhance InvITs' ability to sustain higher leverage without compromising on credit quality.
Says Anand Kulkarni, Director, Crisil Ratings, "With increase in leverage, DSCR3 at ~1.7x4 has contracted to some extent for most InvITs, compared to their DSCR of over ~1.8x as of fiscal 2023. To be sure, DSCR in the past had a buffer, considering the low leverage. Hence despite moderation, the current DSCR remains healthy. Furthermore, regulatory guardrails such as six consecutive distributions for increasing the leverage beyond 49% and limits on under-construction assets continue to anchor credit profiles."
That said, long term cash flow adequacy plays an important role in credit risk assessment. At present, some trusts are opting for back-ended debt repayments supported by long life of assets. While this helps InvITs to optimise distributions, gradual amortisation of debt remains important over the medium term considering finite life of assets.
Overall, while growth and credit outlook remain stable, prudent capital structure management will remain monitorable as InvITs scale up in terms of size, debt levels and complexity.
Shares of CRISIL Limited was last trading in BSE at Rs. 5822.25 as compared to the previous close of Rs. 5858.25. The total number of shares traded during the day was 651 in over 213 trades.
The stock hit an intraday high of Rs. 5896.10 and intraday low of 5775.00. The net turnover during the day was Rs. 3781950.00. |
