SBI aims for top creditor standing for NHAI InvIT to alleviate default apprehensions
State Bank of India (SBI) has proposed seeking senior creditor status for its investments in the National Highways Infra Trust (NHIT), an Infrastructure Investment Trust (InvIT) managed by the National Highways Authority of India (NHAI). This move aims to address concerns about the lack of explicit creditor protection under the current InvIT regulations.
If successful, SBI's claims would be prioritised over other unsecured or subordinate creditors in the event of default or liquidation, enhancing its position and reducing credit risk exposure. However, this would relegate other investors, including bondholders and subordinate lenders, to a lower priority in the repayment hierarchy, potentially increasing their risk and altering their risk-reward calculus.
The implications of this proposal are far-reaching. For creditors and investors, it could create concerns or resistance, impacting market perception of NHIT's creditworthiness and the attractiveness of its securities to a broader pool of investors. For the InvIT market structure, it could lead to calls for more formalized creditor ranking and clearer regulations to balance the interests of different stakeholders.
For NHAI and infrastructure financing, a senior creditor structure could make it easier for institutions like SBI to commit significant funds to infrastructure projects, potentially bolstering infrastructure financing. However, it could also complicate the capital structure of InvITs and increase the cost of junior capital, which is crucial for leveraging projects.
A summary table outlines the potential outcomes for various stakeholders:
| Stakeholder | Impact if SBI Gains Senior Creditor Status | |------------------------|--------------------------------------------------| | SBI | Enhanced repayment priority, lower default risk | | Other Creditors | Lower recovery prospects, higher risk | | NHIT/InvIT | Possible increase in SBI funding, higher cost for junior capital | | Infrastructure Sector | May attract more senior debt, but complicate overall financing structure |
The outcome will depend on negotiations with NHAI, regulatory response, and market acceptance of such a shift in creditor priority. It is important to note that under current rules, InvITs are not governed by India's bankruptcy laws, and SBI has expressed concerns about the lack of creditor protection under these regulations for some time.
SBI has significant exposure to India's road sector, including projects backed by NHAI's InvITs. The sources of the information are anonymous due to the private nature of the talks. The lender, SBI, is not satisfied with the current arrangement and has been discussing potential changes. The InvIT managed by NHIT is the investment vehicle for NHAI's road assets, and as of March-end, the total assets under management of five listed and 16 unlisted InvITs in India exceeded 7 trillion rupees.
Since 2020, NHAI has raised 460 billion rupees through four rounds of InvITs, with a plan to raise an additional 200 billion rupees by monetizing its road assets through InvITs. The largest road monetization exercise to date in India was a 183-billion-rupee round in March. In 2018, SBI signed an agreement with NHAI for a 10-year loan unsecured loan of nearly $3 billion.
This development underscores the growing importance of InvITs in India's infrastructure financing landscape and the need for clear, balanced regulations to protect all stakeholders. The outcome of SBI's request for senior creditor status will be closely watched by the industry and the market.
The proposal by State Bank of India (SBI) for senior creditor status in NHIT could alter the risk-reward calculus for other investors (such as bondholders and subordinate lenders), as it would prioritize SBI's claims in the event of default or liquidation, potentially increasing their risk.
For NHAI and the infrastructure sector, a senior creditor structure could attract more senior debt, but it could also complicate overall financing structure and increase the cost of junior capital, which is crucial for leveraging projects.
