SEBI Expands Permitted Use of Borrowings Above 49% for InvITs: Key Implications Explained

Introduction

The Securities and Exchange Board of India (SEBI), through its circular dated May 15, 2026, has clarified the permissible utilization of fresh borrowings by Infrastructure Investment Trusts (InvITs) where net borrowings exceed 49% of the value of InvIT assets.

This update follows the amendment made to Regulation 20(3)(b)(ii) of the SEBI (Infrastructure Investment Trusts) Regulations, 2014 on April 17, 2026. The amendment was introduced to provide greater operational flexibility to InvITs while ensuring that additional leverage is used only for productive and regulated purposes.

The circular is particularly important for infrastructure-focused investment structures operating in capital-intensive sectors such as roads, transportation, and large-scale infrastructure projects.

Background: Existing Borrowing Framework for InvITs

InvITs are regulated investment vehicles designed to facilitate investment in infrastructure assets while ensuring stable cash flows and transparency for investors.

Under the earlier framework:

• InvITs were permitted to borrow up to 49% of the value of their assets with relatively standard compliance requirements.
• Borrowings beyond 49% were subject to stricter conditions and were allowed only for specified purposes approved under SEBI regulations.

However, ambiguity existed regarding the exact utilization permitted for such higher borrowings. The latest circular addresses this gap by explicitly defining the approved end-use categories.

What Has Changed?

SEBI has now formally specified the permissible purposes for which borrowings exceeding 49% of InvIT asset value can be utilized.

The circular allows such borrowings for three major categories:

1. Capital expenditure for enhancement or expansion
2. Major maintenance expenditure for road projects
3. Refinancing of eligible existing debt

This clarification significantly improves regulatory certainty for InvITs and lenders.

Key Permitted Uses of Additional Borrowings

1. Capital Expenditure for Asset Enhancement or Capacity Augmentation

SEBI has permitted higher borrowings for:

• Enhancing operational performance of infrastructure assets
• Capacity expansion or augmentation projects

Practical Meaning

This means InvITs can now raise additional debt for projects such as:

• Expanding toll road capacity
• Upgrading transmission infrastructure
• Improving operational efficiency
• Modernization of existing infrastructure assets
• Technology integration and asset optimization

Why This Matters

Infrastructure assets often require continuous investment to maintain efficiency and competitiveness. The clarification allows InvITs to pursue long-term value creation initiatives without immediate dependence on equity infusion.

This could improve:

• Asset productivity
• Revenue generation capability
• Long-term investor returns
• Infrastructure quality and scalability

2. Major Maintenance Expenses for Road Projects

SEBI has also allowed borrowings above 49% for major maintenance expenses relating to road projects.

The circular specifically clarifies:

• The maintenance should not be routine maintenance
• The expenditure must align with concession agreement obligations

Further, the definition applies specifically to projects under the “Roads and Bridges” infrastructure sub-sector notified by the Ministry of Finance.

Practical Interpretation

Routine operational repairs cannot be funded under this provision. Instead, it covers significant maintenance activities such as:

• Major resurfacing
• Structural strengthening
• Rehabilitation projects
• Large-scale road restoration works
• Compliance-driven infrastructure upgrades

Impact on Road Sector InvITs

This is a significant relief for road infrastructure InvITs because:

• Road assets require periodic high-value maintenance
• Such expenditure is often unavoidable under concession obligations
• Large maintenance cycles can temporarily strain cash flows

The clarification provides financial flexibility while ensuring that infrastructure quality standards are maintained.

3. Refinancing of Existing Debt

SEBI has additionally permitted refinancing of debt by:

• InvITs
• Special Purpose Vehicles (SPVs)
• Holdcos

However, the circular imposes important conditions:

Condition 1:

The original debt being refinanced must have been utilized for purposes already permitted under Regulation 20(3)(b)(ii).

Condition 2:

Only the principal amount can be refinanced. Accumulated interest, penalties, charges, or fees cannot be refinanced.

Why This Provision is Important

Refinancing flexibility helps InvITs:

• Reduce financing costs
• Improve debt maturity profiles
• Manage liquidity efficiently
• Replace expensive debt with optimized borrowing structures

At the same time, SEBI has restricted refinancing misuse by excluding capitalization of accumulated interest and charges.

This reflects a balanced regulatory approach between operational flexibility and financial discipline.

Key Compliance and Governance Implications

1. Increased Documentation Responsibility

InvITs will now need stronger documentation to demonstrate:

• End-use of borrowings
• Nature of capital expenditure
• Qualification of maintenance expenditure
• Debt utilization tracking
• Compliance with concession agreements

Proper audit trails will become critical.

2. Enhanced Monitoring by Trustees and Auditors

Trustees, internal auditors, and statutory auditors may need to:

• Verify borrowing utilization
• Assess compliance with permitted categories
• Evaluate refinancing eligibility
• Review supporting contractual obligations

This increases governance oversight expectations.

3. Strategic Financing Flexibility

The circular improves the ability of infrastructure entities to:

• Execute long-term expansion plans
• Maintain operational quality
• Optimize debt structures
• Manage capital-intensive projects efficiently

This may positively impact infrastructure development and investor confidence in the InvIT ecosystem.

Broader Market Impact

The clarification is expected to support:

• Infrastructure financing efficiency
• Operational sustainability of InvIT assets
• Long-term capital deployment
• Better asset lifecycle management

For investors, the move indicates SEBI’s intent to balance:

• Growth flexibility
• Financial prudence
• Asset quality preservation
• Risk-controlled leverage

The framework remains regulated while becoming more commercially practical.

Effective Date

The circular has come into force with immediate effect from May 15, 2026.

Conclusion

SEBI’s clarification on the permitted use of borrowings above 49% for InvITs represents a pragmatic regulatory development for India’s infrastructure investment ecosystem.

The circular provides much-needed clarity and financing flexibility for capital expenditure, major road maintenance, and refinancing activities while retaining safeguards against misuse of leverage.

For InvIT managers, compliance professionals, auditors, and infrastructure investors, the update highlights the growing importance of:

• disciplined debt governance,
• transparent utilization tracking,
• robust documentation, and
• strategic capital management.

As the InvIT market continues to evolve, such regulatory refinements are likely to play a key role in supporting sustainable infrastructure growth and long-term investor confidence.