SEBI proposes easing NDCF norms for Road InvITs

The Securities and Exchange Board of India (SEBI), through its circular dated December 6, 2023 prescribed a standardized framework for calculation of Net Distributable Cash Flows (NDCF) for Infrastructure Investment Funds (InvITs).  Among other things, this framework expressly prohibits the use of external debt to fund distributions to unitholders and starts the NDCF computation from ‘cash flow from operating activities’ (CFO), which is determined after deduction of operating expenses, including major maintenance (MM) expenses.

SEBI has received a representation from Bharat InvITs Association, an industry association for InvITs seeking a review of this framework in the context of road sector InvITs, specifically with respect to the treatment of debt availed for MM expenses of road projects.

SEBI notes that, although MM expenses are treated as operating expenses for accounting purposes, they are typically material over the life of the project and are essential to preserve the economic value and contractual performance of the road asset.  The extant framework’s strict bar on using external debt for distributions, combined with the treatment of MM expenditure in CFO, has therefore raised concerns from the road InvIT segment on its impact on distributions and transaction economics.

Against this backdrop and taking into account the representation from the industry association, SEBI has released a draft circular dated June 1, 2026 (Draft Circular), proposing calibrated relaxations to permit the add‑back of certain debt‑funded major maintenance expenses in NDCF computation, subject to conditions designed to safeguard unitholder interests and preserve transparency around leverage and distributions. The Draft Circular was open for stakeholder inputs until June 22, 2026.

Key proposals made by SEBI in the Draft Circular are outlined below:

1. Permitting add-back of debt-funded MM expenses for road projects:

• • SEBI proposes that payments made towards MM expenses for road projects of InvITs, to the extent funded by external borrowing, may be added back in the NDCF computation. The relaxation would apply at both the special purpose vehicle (SPV) / holding company (HoldCo) level and the InvIT (trust) level, and is subject to a set of definitional, approval, certification and disclosure conditions.

• • For the purposes of the proposed framework, ‘Road Project’ would mean a project in the ‘Roads and bridges’ infrastructure sub-sector as notified by the Ministry of Finance on September 19, 2025, together with any subsequent amendments or additions.

• • Further, ‘major maintenance expense’ would mean expenditure incurred on maintenance of a road project which is not routine maintenance and is undertaken in line with the obligations and requirements specified in the relevant concession agreement.

2. Unitholder approval:

• • As per the Draft Circular, prior unitholder approval under Regulation 22(5) of the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 (InvIT Regulations) would be required before adding back externally funded MM expenses for road projects in NDCF.

• • The proposal must be approved by unitholders where votes cast in favour are at least 60% of total votes cast.

• • Approval is to be obtained for each project in respect of which the investment manager proposes to raise external borrowing for MM expenditure payments. This applies irrespective of whether the project is held at the InvIT, SPV or HoldCo level.

• • InvITs may seek unitholder approval either: (a) on a one-time basis for debt already availed or proposed to be availed for MM expenses over the entire life cycle of the project; or (ii) for specific MM events / expenses. Any deviation that requires additional debt beyond what was previously approved requires fresh unitholder approval prior to incurring the additional borrowing.

• • The explanatory statement accompanying the notice for unitholders’ meeting at which such approval is sought must, at a minimum, contain the following disclosures:

• • • Project coverage: Names and details of the relevant projects, SPVs and HoldCos for which MM borrowing is proposed to be raised or has already been raised, together with clarification that the MM borrowing may be undertaken at the trust or SPV/HoldCo level.

• • • Expense categorization: A description of all categories of expenses that will be treated as MM expenses.

• • • Projections: Year-wise and project-wise estimates of MM expenses to be funded or proposed to be funded by borrowing, based on the latest available valuation report.

• • • Impact on growth potential: An explanation of the potential impact on the InvIT’s future growth capacity arising from the use of borrowing for MM expenses. In this context, the Draft Circular suggests that InvITs may include a standard disclaimer to the effect that: (A) MM debt is similar to a loan taken for capital expenditure but MM expenses cannot be capitalized under applicable accounting principles; (B) MM debt forms part of the aggregate borrowing of the InvIT and reduces future leverage headroom available to fund growth; and (C) in contrast, the approach yields higher cash flows available for distribution or other uses in years when no cash is set aside for MM reserves.

• • • Impact on distributions:

• • • • Pre‑MM period: Where applicable, disclosure that, in the absence of MM reserves, distributions may be higher in the initial years leading up to the MM event.

• • • • Post‑MM borrowing: An explanation of the expected loan repayment period (e.g.  over “__ years”) and that year‑on‑year distributions may be correspondingly reduced during the repayment tenure, based on the final repayment schedule agreed with lenders.

• • • Alternative funding scenarios: A discussion of funding alternatives if debt is not available in future for MM expenses, including disclosure, where relevant, that operating cash flows might then need to be diverted to MM expenditure, which could in turn reduce distributions to unitholders.

3. Statutory auditor certification: 

• • As a precondition to adding back MM expenses funded by external borrowing in NDCF, the statutory auditor of the InvIT must certify that: (I) the payments actually made as MM expenses are in line with the obligations and requirements for major maintenance specified in the relevant concession agreements; and (II) such payments have been funded by external borrowing.

• • Only those MM payments funded by external borrowing and so certified will be eligible to be added back in NDCF computation.

4. Ongoing reporting and enhanced disclosure requirements:

• • Once the framework is adopted, SEBI proposes that InvITs disclose MM borrowing and its impact in their financial statements and periodic reports, as follows:

• • • The ‘Net Borrowing Ratio’ must separately identify and quantify the amount and percentage of borrowing used for MM expenses.

• • • The notes to the NDCF statement, at both the project/SPV/HoldCo level and the InvIT level, must disclose the aggregate amount of borrowing raised during the relevant period to meet MM expenses and the aggregate amount of MM related borrowing outstanding as of the reporting date.

• • • The usual debt maturity profiles disclosed in the annual, half-yearly and quarterly reports must specifically segregate and highlight borrowing undertaken for MM expenses.

Conclusion:

SEBI’s draft framework represents a targeted recalibration of the NDCF regime for InvITs in the road sector, recognizing the sectoral realities around funding of major maintenance and the non‑capitalizable nature of such expenditure under accounting norms.