Building an InvIT: The Work That Starts Before the Capital Market Transaction

Capital market transactions are visible. Preparation is not.

When an InvIT reaches the formal market process, attention naturally moves to documents, valuation, investor engagement, intermediaries and timelines. Those are important, but they sit on top of work that should have started much earlier.

The real foundation is built inside the sponsor organisation: selecting the right assets, understanding cash flows, resolving debt issues, preparing financial information, designing governance and clarifying who will manage the platform after the transaction.

The earlier this work begins, the more control the sponsor retains over the process. The later it begins, the more likely preparation becomes reactive.

Start with the Strategic Objective

Before discussing structure, the sponsor should define why it is considering an InvIT.

Is the objective to monetise mature assets? Reduce leverage? Recycle capital into new projects? Build a long term acquisition platform? Create access to institutional capital? Or combine several of these objectives?

The answer influences almost every later decision, including asset selection, capital structure and the intended evolution of the platform.

Build the Asset Perimeter Carefully

The next step is deciding which assets belong inside the proposed platform.

This is more than an eligibility exercise. The selected assets should create a coherent economic story. Their operating history, concession profile, revenue visibility, maintenance needs, geographic spread and risk characteristics should be understood individually and collectively.

An asset may be valuable and still be better retained outside the initial platform if it introduces excessive complexity or has unresolved issues.

Map Cash Flow Before Structuring Capital

Cash flow should be examined before debt and distribution assumptions are finalised.

The sponsor needs a clear view of operating cash generation, maintenance expenditure, taxes, debt service, reserves and distribution capacity. Cash flows should also be stress tested for realistic downside cases.

This work matters because an InvIT is judged not simply by accounting earnings but by the quality, visibility and sustainability of the cash produced by its underlying assets.

Resolve Debt Questions Early

Existing project debt can materially influence the structure.

Lender consents, security arrangements, repayment schedules, refinancing requirements and covenant constraints may all affect how assets can be moved or financed. Waiting until the transaction timetable is active can create avoidable pressure.

Debt should therefore be treated as part of platform design, not as a closing item.

Institutionalise Financial Information

A sponsor may know its assets intimately and still need to improve how that knowledge is documented.

Institutional investors and transaction advisers require information that can be reconciled, traced and explained. Financial statements, project accounts, operating metrics, debt schedules, contracts and management information should tell one consistent story.

This is where preparation often creates value even before a transaction occurs. Better information improves management decision making.

Design Governance for the Platform You Want to Become

InvIT governance should not be assembled as a compliance exercise at the end.

The respective responsibilities of the sponsor, investment manager, trustee and project entities need to be understood. Decision processes, reporting lines, related party arrangements, management responsibilities and escalation mechanisms should be designed for an institutional environment.

The current SEBI framework sets out distinct roles and obligations for InvIT participants. The commercial organisation should be ready to operate within that discipline.

Prepare Management, Not Just Documents

Investors do not invest only in spreadsheets. They also evaluate the people responsible for managing the platform.

Management should be able to explain the assets, operating risks, cash flows, capital strategy and future growth logic consistently. That requires clarity across finance, operations and leadership.

The strongest preparation therefore includes management readiness, not only transaction documentation.

Bring in the Formal Transaction Ecosystem at the Right Stage

An InvIT transaction involves regulated and specialist participants, including registered intermediaries and professional advisers.

The strategic preparation described here does not replace those roles. It makes the sponsor better prepared to work with them.

Once the underlying platform is ready, the formal transaction process can proceed with stronger information, clearer responsibilities and fewer unresolved internal questions.

Manish's Perspective

The temptation in any capital market transaction is to work backwards from the proposed launch date. I prefer to work forward from the quality of the underlying platform.

If the asset perimeter, debt, cash flow, information and governance are clear, the transaction process becomes much more manageable. If those foundations are weak, the market process simply exposes the weakness under tighter timelines.

Preparation Is Strategic, Not Administrative

The work before an InvIT should improve the business even if the transaction takes longer than expected or the chosen route changes.

A clearer portfolio, stronger debt structure, better reporting and more disciplined governance all have value independently of the capital market event.

That is why InvIT readiness should be treated as a strategic transformation process rather than a documentation exercise.

General educational and business information, not legal, tax, investment or regulated securities advice. Illustrations are hypothetical and are not forecasts or promised returns. Transaction-specific requirements must be checked with appropriately qualified and authorised advisers.