Cerestra Advisors plans to launch InvIT and offshore edu-infra fund

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Private equity fund Cerestra Advisors Ltd is planning to launch an infrastructure investment trust (InvIT) and raise a second education infrastructure fund through the offshore route, a top executive said.

Cerestra was acquired by London-based asset manager The Capital Partnership (TCP) from Religare Global Asset Management on 1 August. It is currently raising Cerestra Edu-Infra Fund, its first-ever fund of Rs.1,000 crore.

Categorized as a domestic alternate investment fund, it aims to buy out income-generating chains of schools and colleges across cities. The fund plans to strike around 15 deals at an average value of $10 million, and with these income-generating assets, launch an InviT sometime next year.

“The fund is a precursor to our objective of doing an InvIT. A decent-sized InvIT would be one of $350-500 million in portfolio value, and we plan to bring in our own assets along with the option of pooling in assets from another entity in the same sector to bring it up to a certain size and then list it,” said Jasmeet Chhabra, managing partner, Cerestra Advisors.

Cerestra’s investment theme is to buy out large educational infrastructure assets, where it also owns the land. It started raising the first fund in November 2015 and has closed two deals so far, investing about Rs.180 crore. It bought Mumbai’s Witty International School and invested in Bengaluru’s Jain Group of Institutions. It is in talks to invest in two more transactions in north India.

Chhabra said the team is raising money and deploying it simultaneously. “We plan to finish fund-raising by early next year, after which we want to raise an offshore fund in the same education infrastructure space,” he said.

With TCP as its new sponsor, Cerestra will have more exposure to international markets and be better poised to raise offshore money.

While both InvITs and real estate investment trusts (REITs) were introduced at the same time, the former seems to have gained favour among firms.

In May, the Securities and Exchange Board of India (Sebi) released norms for the public issue of units of InvITs—the final set of major rules that were awaited before companies could start marketing their issues.

InvITs are trusts that manage income-yielding infrastructure assets, typically offering investors regular yields and a liquid way of investing in infrastructure projects. They bring in more foreign investment in the sector, reduce the burden on bank debt and let developers unlock the value of such assets.

“InvITs are gaining momentum and many infrastructure companies with a lot of debt are enthusiastic and rushing to the market. Since we are not looking at the concession model at all, which is a common thing in regular infrastructure projects, we believe the underlying land should be our own. We think pricing of an InvIT will be the key thing,” said Chhabra.

Tata Realty and Infrastructure Ltd is planning to invest around Rs.9,000-10,000 crore in various infrastructure projects, build a substantial portfolio and then launch an InvIT, Mint reported on 16 August.

IRB Infrastructure Developers Ltd and Sterlite Power Grid are also gearing up to list their InvITs. Other infrastructure companies such as IL&FS Transportation Networks Ltd, GMR Infrastructure Ltd and MEP Infrastructure Developers Ltd are also looking to raise money and cut debt via structures such as InvITs.

“InvITs are slightly more advanced in momentum compared to REITs, and that’s because the former allows you a three-year window before you list it. Many infrastructure projects need to be recapitalized and refinanced, and InvITs will help companies in bringing down the debt-equity levels, which is why there is more interest around them,” said Abhishek Goenka, tax partner, PricewaterhouseCoopers.