This mechanism should apply only to the ‘Roads and Bridges’ sector and requires strict unitholder approval, according to news agency PTI.
The development came after the Securities and Exchange Board of India (Sebi) received representation from the Bharat InvITs Association (BIA) regarding the treatment of debt availed by InvITs for incurring major maintenance expenses of road projects while calculating the NDCF.
Why the industry sought a change?
The industry association argued that major maintenance (MM) expenses on road projects create an accounting mismatch for InvITs. While such expenditures help to preserve road’s life and quality, they cannot be capitalised under generally accepted accounting standards because they do not generate future economic benefits, such as longer concession periods or higher toll revenue.
Since InvITs holding road projects cannot capitalise these MM expenses under the current NDCF framework, any MM expense incurred by availing debt is mandatorily reduced from the operational cash flow, which decreases the NDCF, the industry body added.
Taking the feedback into consideration, Sebi in its consultation paper 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”.
Unitholder approval safeguards proposed
Sebi also suggested that prior approval from unitholders shall be required before adding back major maintenance expenses funded through external borrowings to the NDCF calculation. Under the proposal, the resolution would be deemed approved if votes cast in favour account for at least 60% of the total votes cast.
Approval can be obtained on a one-time basis covering the entire project life cycle or for specific MM expenses, but any deviation requiring additional debt necessitates prior unitholder approval, PTI reported.
When seeking unitholder approval, the explanatory statement accompanying the notice for the unitholding meeting should disclose the names and details of the projects/SPVs (Special Purpose Vehicles)/ Holdcos (Holding companies) for which the MM debt is proposed or has already been raised, the regulator suggested.
Other required disclosures include whether the MM debt may be raised at the Trust level or SPV/HoldCo level; the category of all expenses considered as MM expenses; year-wise and project-wise estimates of the MM expenses for which debt is raised or proposed to be raised, based on the latest available valuation report; and the possible impact on the InvIT’s future growth potential of InvIT due to using debt for MM expenses.
“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 in the paper,
Earlier, Sebi prescribed a standardised framework for the calculation of NDCF for InvITs, with a clear restriction on the use of borrowed funds for distributions to unitholders, the news agency said.
Sebi has sought public comments till June 22, 2026 on the proposal.
(With inputs from PTI)
