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Cube Highways plans InvIT to sell a part of its road assets

The move comes after the government removed the tax barrier for private placement of InvITs in the budget, putting them at par with publicly listed ones. Cube will hive off its operating assets into an infrastructure investment trust or InvIT and place it privately with other investors, said three people with direct knowledge of the development.

, ET Bureau|
Last Updated: Feb 26, 2020, 07.05 AM IST
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Agencies
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The Cube Highways InvIT will consist of the toll-operate-transfer or TOT assets that it won from National Highways Authority of India (NHAI) last year for Rs 5,011 crore.
MUMBAI: India’s biggest road asset investor Cube Highways and Infrastructure is in initial talks with investors including Caisse de dépôt et placement du Québec (CDPQ), Abu Dhabi Investment Authority (ADIA) and Ontario Teachers’ Pension Plan Board to sell part of its operational road assets through an infrastructure trust.

Cube will hive off its operating assets into an infrastructure investment trust or InvIT and place it privately with other investors, said three people with direct knowledge of the development. Cube is backed by Singapore-based global infrastructure fund I Squared Capital, spun off from Morgan Stanley’s infrastructure investment team. The company is exploring a valuation of around $2.5 billion for the InvIT, they said.

The move comes after the government removed the tax barrier for private placement of InvITs in the budget, putting them at par with publicly listed ones. However, the proposal to tax dividends in the hands of unit holders of trusts and the resultant double taxation has eroded the attractiveness of existing and planned InvITs and real estate investment trusts (REITs). The government is planning a carveout to maintain the status quo, ET reported on February 17.

The Cube Highways InvIT will consist of the toll-operate-transfer or TOT assets that it won from National Highways Authority of India (NHAI) last year for Rs 5,011 crore. “The InvIT is being valued at around $2.5-3 billion and will have some other existing annuity assets the company has,” said one of the persons with knowledge of the development.
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Although there is ambiguity over the dividend distribution tax and other regulatory issues for a private InvIT, sources said Cube, which is headquartered overseas, will be out of the tax net.

“Cube is looking at placing the units of the InvITs with global sovereign wealth funds and others who are exempt from this double taxation,” said a person with knowledge of the matter. “The company invited investment banks a fortnight ago and will soon be awarding mandates to a couple of them.” Cube Highways and I Squared Capital didn’t respond to queries.

Finance minister Nirmala Sitharaman modified the definition of business trusts and included unlisted private trusts in the tax-exemption bracket in the budget.

“This aligns the Income Tax Act in line with the Sebi (Securities and Exchange Board of India) regulations that came out last year,” Shagoofa Khan, partner at Cyril Amarchand Mangaldas, a leading law firm, told ET on budget day. “Until now, a lot of developers who were hesitant to list their assets will now be able to access capital with this change in tax regime.”

Cube Highways has 28 road projects or more than 8,600 km of highways across India under ToT, annuity and direct ownership. It has invested over $3 billion in India’s road sector so far.

The TOT bundle it acquired last year from NHAI includes nine stretches of road totalling 566.27 km across Uttar Pradesh, Jharkhand, Bihar and Tamil Nadu. The government introduced the TOT model in 2016, allowing it to monetise public-funded infrastructure and build new assets.

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