The Securities and Exchange Board of India (SEBI) has proposed a regulatory change that could lead to higher and more stable investor payouts from road-focused Infrastructure Investment Trusts (InvITs), by revising how distributable cash flows are calculated. The move is aimed at addressing long-standing concerns raised by industry participants over volatility in returns linked to periodic highway maintenance costs.

In a consultation paper issued on Monday, SEBI suggested allowing road InvITs to exclude the impact of certain debt-funded major maintenance expenses while computing net distributable cash flows, which serve as the primary metric for determining payouts to unitholders. The proposal specifically targets large-scale resurfacing and maintenance works required under highway concession agreements, which are typically financed through borrowings.

Under the existing framework, such maintenance expenses reduce distributable cash flows, often resulting in sharp declines in investor payouts during years when major repair works are undertaken. Industry stakeholders have argued that this creates unnecessary volatility in returns, even though the expenditure is not directly linked to operational cash generation.

Also Read: SEBI Revises Leverage Norms For InvITs Above 49% Borrowing Level

SEBI’s proposed revision would permit InvITs to add back debt-funded major maintenance costs while calculating distributable cash flows. According to the regulator, the change is intended to smoothen payout patterns, improve predictability for investors and enhance the attractiveness of the InvIT route for infrastructure monetisation.

The regulator noted that the proposal has emerged following representations from market participants and is aligned with its broader objective of promoting ease of doing business in the infrastructure investment space. Industry players have also pointed out that the current rules increase acquisition costs and may discourage developers from using InvIT structures to monetise road assets.

At the same time, SEBI has proposed safeguards to ensure transparency and investor protection. These include mandatory unitholder approval before availing the revised treatment, auditor certification of maintenance-related expenses, and enhanced disclosure requirements regarding borrowings and their potential impact on future distributions.

The consultation process is open for public comments until June 22, after which the regulator is expected to take a final view on the proposed amendments. If implemented, the changes could significantly alter payout dynamics for road InvITs and improve income stability for infrastructure investors.

Also Read: SEBI Proposes Simplified Derivatives Rules To Cut Exchange Compliance Burden