KKR India Bets Big On Indian Infrastructure Growth, Launches Highways InvIT

Global investment firm KKR today (Aug 29) announced the launch of Highways Infrastructure Trust (HIT), a roads infrastructure investment trust (InvIT).

HIT is KKR’s third InvIT in India, in addition to Virescent Renewable Energy Trust, India’s first renewable energy InvIT, and India Grid Trust, a leading transmissions InvIT, and marks KKR’s latest development as it scales its infrastructure investment activity in the country. Together, KKR's InvIT platforms operate and manage 33 assets valued at over $3.8 billion across 22 states or union territories across India.

HIT’s initial portfolio comprises of six roads assets with a total length of more than 450 kilometers across six states in India. The assets, which include a diversified mix of toll and annuity roads, are located in Gujarat, Madhya Pradesh, Meghalaya, Rajasthan, Tamil Nadu, and Telangana.

HIT is also planning a pipeline of acquisition targets, including through its sponsor.

HIT’s launch takes place on the back of growing demand to expand India’s road network, the second-largest globally, as passenger traffic and commercial vehicle traffic continue to increase. Today, India’s road network is responsible for 90% of total passenger traffic and the movement of almost 65% of all goods across the country.

In January this year, KKR closed its $3.9 billion debut Asia Infrastructure Fund to invest in assets and companies that cater to infrastructure space across Asia Pacific.

In April this year, KKR signed an agreement with Ontario Teachers’ Pension Plan Board under which Ontario Teachers’ will invest up to $175 million (Rs 1,330 crore) in KKR’s road platform in India.

Ontario Teachers had earlier investmed a 25% stake in the National Highways Infra Trust late last year. Ontario Teachers is also an anchor investor in the National Investment and Infrastructure Fund (NIIF).

In July 2021, KKR acquired the stake of Global Infrastructure Partners’ (in Highway Concessions One and seven highway assets with a total length of 487 kilometers. HC1 is a platform in India that manages GIP’s road portfolio which spans across seven states including Gujarat, Karnataka, Madhya Pradesh, Meghalaya, Rajasthan, Tamil Nadu, and Telangana.

Hardik Shah, Partner at KKR, said, “HIT’s launch is a significant milestone for KKR’s India infrastructure strategy as we deepen our presence in the market. Highways and roads play a critical role in driving India’s economic prosperity and connecting its citizens, and we look forward to enabling further infrastructure creation and expansion as transportation demands continue to grow. With our dedicated platforms across transmissions, roads, and renewables in place, KKR is well-positioned to collaborate with sellers in the private markets and the government through the National Monetisation Pipeline on attractive investment opportunities.”

InvIT Explained

An InvIT is an investment trust created for investors to buy into infrastructure projects with investor funds. Infrastructure companies sell their assets to InvITs as a means to monetise their cash-generating infrastructure assets. InvITs are mandated by the Securities and Exchange Board of India to pay out 90 per cent of net cash flows as dividends. Therefore, investors buy into InvITs, expecting steady cash flows.

Like mutual funds, InvITs have a tiered structure composed of a trustee, a sponsor, a project manager and an investment manager.

The InvIT sponsor is responsible for setting up the InvIT, and appointing a trustee that acts as a fair overseer. The trustee’s job is to flag any concerns or unfair dealings, protecting the interests of the unit-holders. The investment manager decides the capital allocation strategy of the unit-holders’ funds, selecting projects or securities to invest in. Lastly, the project manager focuses on the management, maintenance and building of the projects owned by the trust.