Market regulator Sebi on Monday proposed allowing Infrastructure Investment Trusts (InvITs) in the roads sector to add back certain major maintenance expenses funded through external debt while calculating Net Distributable Cash Flow (NDCF), a move aimed at addressing industry concerns over lower distributable cash.The proposal follows representations from the Bharat InvITs Association (BIA), which sought clarity on the treatment of debt raised for major maintenance of road assets.According to the association, major maintenance (MM) expenditure helps improve road quality and extend the life of projects but cannot be capitalised under existing accounting principles because it does not generate future economic benefits such as higher toll revenues or longer concession periods.As a result, road InvITs currently have to deduct such expenses from operational cash flow even when they are funded through debt, reducing the Net Distributable Cash Flow available for distribution to unitholders.In a consultation paper, Sebi proposed that “payments made for the purpose of MM expense for the Road Projects of InvITs to the extent funded by external debt will be allowed to be factored (added back) for the purpose of the NDCF computation”.The proposed relaxation will be applicable only to the Roads and Bridges sector and will require approval from unitholders.Sebi suggested that the proposal should be approved if at least 60 per cent of the votes cast are in favour of the resolution. The approval may be obtained either as a one-time consent covering the entire project life cycle or for specific maintenance expenditure.However, any deviation requiring additional debt beyond the approved amount would require fresh prior approval from unitholders.The regulator also proposed extensive disclosure requirements while seeking unitholder approval. These include details of projects, special purpose vehicles (SPVs) or holding companies for which maintenance-related debt has been raised or is proposed to be raised, the level at which such debt will be taken, the nature of expenses classified as major maintenance and project-wise estimates of future maintenance spending.InvITs will also have to disclose the possible impact of such borrowing on future growth prospects.“The payment of major maintenance expenses, which is funded by external borrowing, as certified by the statutory auditor of the InvIT, will be allowed to be added back for the purpose of NDCF calculation,” Sebi said.Earlier, Sebi had prescribed a standardised framework for calculating NDCF for InvITs, under which borrowed funds could not be used for distributions to unitholders.The regulator has invited public comments on the proposal until June 22.
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