Permitted use of fresh borrowings for InvITs where Net Borrowings exceeds forty-nine percent of the value of InvIT assets

The Securities and Exchange Board of India (SEBI) issued a circular on May 15, 2026 (Ref: SEBI/HO/DDHS/DDHS-PoD-2/I/11700/2026) clarifying the permitted uses...

What Happened

The Securities and Exchange Board of India (SEBI) issued a circular on May 15, 2026 (Ref: SEBI/HO/DDHS/DDHS-PoD-2/I/11700/2026) clarifying the permitted uses of fresh borrowings by Infrastructure Investment Trusts (InvITs) when their net borrowings exceed 49% of the value of InvIT assets.
This circular follows an amendment to Regulation 20(3)(b)(ii) of the SEBI (Infrastructure Investment Trusts) Regulations, 2014 (commonly referred to as the InvIT Regulations, 2016 in regulatory parlance), made on April 17, 2026.
Under the existing regulatory framework, InvITs are permitted to borrow up to 49% of their asset value. Where net borrowings already exceed this 49% threshold, SEBI has now specified the limited and specific purposes for which fresh (additional) borrowings may still be raised.
Permitted uses of fresh borrowings beyond the 49% threshold:
Capital expenditure aimed at enhancing asset performance or increasing capacity of existing infrastructure assets.
Major maintenance expenditure for road projects — specifically non-routine maintenance obligations aligned with concession agreement terms.
Refinancing of existing debt — subject to conditions: the original debt must have been raised for eligible purposes, and only the principal amount may be refinanced (accumulated interest, charges, and fees may not be included).
The circular establishes safeguards to prevent InvITs from using the borrowing headroom for financial engineering or non-infrastructure purposes when they are already leveraged beyond the standard limit.

Static Topic Bridges

Infrastructure Investment Trusts (InvITs): Structure and Purpose

Infrastructure Investment Trusts (InvITs) are hybrid instruments — part trust, part investment vehicle — designed to pool capital from investors and deploy it into completed, revenue-generating infrastructure projects. They are regulated by SEBI under the SEBI (Infrastructure Investment Trusts) Regulations, 2014.

InvITs work analogously to mutual funds: they hold infrastructure assets (toll roads, power lines, gas pipelines, etc.) in a trust structure, issue units to investors, and distribute income from the assets.
Mandatory distribution: InvITs must distribute at least 90% of their net distributable cash flow to unit holders.
Asset composition: At least 80% of the InvIT's value must be in completed and revenue-generating infrastructure projects.
InvITs may be publicly listed (units traded on stock exchanges) or privately placed (open only to institutional and sophisticated investors).
The structure separates asset ownership (the trust) from asset management (the investment manager) and from the special purpose vehicles (SPVs) that hold individual projects.
In India, prominent InvITs include the NHAI InvIT (road assets), PowerGrid InvIT (electricity transmission), and IndInfravit Trust (toll roads).

Connection to this news: The SEBI circular governs the financial management of these trusts — specifically the guardrails on borrowing when an InvIT's leverage is already high, balancing the need for infrastructure capital expenditure against the risk of overleveraging.

Infrastructure Financing and the NMP: Policy Context

Infrastructure financing in India has evolved from pure government budgetary support towards hybrid models involving private capital, asset monetisation, and structured finance instruments.

The National Monetisation Pipeline (NMP), launched in 2021, envisages monetising ₹6 lakh crore of public infrastructure assets over four years (FY2022–FY2025) through instruments including InvITs, Real Estate Investment Trusts (REITs), and Public-Private Partnerships (PPPs).
InvITs allow the original developer (e.g., NHAI or a private developer) to unlock capital tied up in completed assets, which can then be recycled into greenfield projects.
The NMP principle is "monetise to build more" — the proceeds from placing operational assets into InvITs fund new construction.
India's infrastructure investment target under the National Infrastructure Pipeline (NIP) is approximately ₹111 lakh crore over FY2020–FY2025, requiring significant private sector participation.

Connection to this news: The SEBI circular enables InvITs that have already hit their borrowing ceiling to continue investing in their existing assets (capex, road maintenance) — supporting infrastructure quality and asset performance without requiring the trust to issue new equity units, which dilutes existing investors.

SEBI's Regulatory Role in Capital Markets

The Securities and Exchange Board of India (SEBI) is the statutory regulator for securities markets in India, established under the SEBI Act, 1992.

SEBI's mandate covers investor protection, development of the securities market, and regulation of intermediaries.
SEBI regulates InvITs, REITs (Real Estate Investment Trusts), mutual funds, stock exchanges, depositories, and listed companies.
InvIT-specific regulations were first notified in 2014 and have been amended multiple times (including in 2016 and 2024) to liberalise the framework and expand investor eligibility.
SEBI issues circulars to provide operational guidance, clarifications, and amendments to existing regulatory requirements — these have immediate effect on regulated entities.
Key InvIT regulatory milestones: 2014 (regulations notified), 2016 (first amendments allowing retail investor participation), 2021 (minimum investment size for public InvITs reduced to ₹10,000), 2024 (borrowing limit enhanced to 70% of AUM for AAA-rated InvITs under certain conditions).

Connection to this news: This circular represents SEBI's role in fine-tuning InvIT regulations — providing clarity that enables InvITs to continue prudent capital expenditure even at elevated leverage levels, while guarding against misuse of borrowed funds.

Debt Financing in Infrastructure: Risks and Guardrails

Infrastructure assets are capital-intensive and long-lived, making debt a natural financing instrument. However, excessive leverage creates systemic risk.

The standard debt-to-asset cap for InvITs is 49% of InvIT asset value (net of cash). This is significantly higher than the leverage limits for most other regulated investment vehicles in India.
For AAA-rated InvITs, the limit was expanded to 70% of AUM under amendments made effective 2024 — reflecting the lower credit risk associated with top-rated infrastructure trusts.
Refinancing risk is a major concern in infrastructure: if an InvIT can only roll over debt (not reduce it), a credit event or market stress can quickly become a liquidity crisis. The SEBI circular's refinancing permission (principal only, no interest capitalisation) is designed to prevent leveraging escalation.
Capex vs. dividends: At high leverage levels, the trade-off between paying distributions to unit holders and funding necessary capital expenditure becomes acute. The circular provides a clear rule: capex that enhances or maintains the asset is a permitted use of borrowings even above the standard limit.

Connection to this news: By specifying the narrow set of permitted uses, SEBI is protecting the quality and performance of infrastructure assets held in InvITs — ensuring that leverage above the standard threshold is used for value-preserving purposes, not for financial arbitrage.

Key Facts & Data

Circular reference: SEBI/HO/DDHS/DDHS-PoD-2/I/11700/2026; issued May 15, 2026.
Trigger regulation: Amendment to Regulation 20(3)(b)(ii), SEBI (InvIT) Regulations, 2014; amended April 17, 2026.
Standard InvIT net borrowing limit: 49% of the value of InvIT assets.
AAA-rated InvIT borrowing limit (2024 amendment): up to 70% of AUM.
InvIT mandatory distribution requirement: at least 90% of net distributable cash flows.
Minimum asset composition requirement: at least 80% in completed, revenue-generating infrastructure assets.
Permitted uses above the 49% threshold: (1) capex to enhance/increase capacity, (2) major maintenance for road projects, (3) refinancing of principal of eligible original debt.
SEBI Act: 1992; SEBI InvIT Regulations first notified: 2014.
National Monetisation Pipeline (NMP): launched 2021, target ₹6 lakh crore over 4 years.
National Infrastructure Pipeline (NIP): ~₹111 lakh crore total investment target FY2020–FY2025.