1. Executive Summary
The circular issued by the Securities and Exchange Board of India (SEBI) on 14 August 2026 introduces a significant modification to the framework for calculating Net Distributable Cash Flows (NDCF) of Infrastructure Investment Trusts (InvITs). The principal change is to permit, subject to specified safeguards, the add-back of major maintenance expenditure incurred by road projects to the extent such expenditure is funded through external borrowings.
The amendment effectively provides InvITs with greater flexibility in managing major maintenance requirements without an immediate corresponding reduction in NDCF available for distribution. However, SEBI has surrounded this flexibility with substantial governance, disclosure, borrowing and audit requirements, recognising that debt-funded maintenance can increase near-term distributable cash while simultaneously creating additional leverage and future debt-servicing obligations.
The framework therefore represents a balancing mechanism between maintaining distribution capacity and preserving financial discipline.
2. Background and Rationale
Under the earlier NDCF framework contained in the Master Circular for InvITs dated 11 July 2025, major maintenance expenditure would generally have the effect of reducing the cash available for distribution.
SEBI's latest amendment follows representations from industry seeking permission to add back debt-funded major maintenance expenditure in determining NDCF. The proposal was considered by the Hybrid Securities Advisory Committee (HySAC) and was also subjected to public consultation.
The regulatory rationale appears to be that major maintenance expenditure for road assets can be substantial and periodic rather than routine. Allowing such expenditure to be financed through external borrowing can therefore avoid the need for InvITs to accumulate large cash reserves solely for future maintenance requirements.
3. Key Regulatory Change
The most important amendment is the introduction of a new line item in the NDCF computation at both:
- HoldCo/SPV level, and
- Trust level.
The permitted adjustment is:
Payments made towards major maintenance expense for road projects, to the extent funded by external borrowing.
Such amounts may be added back while calculating NDCF, subject to the conditions prescribed under the newly introduced Note 12.
The same treatment is incorporated at the Trust level.
This is a material change because it potentially allows an InvIT to maintain a higher NDCF in a period in which significant maintenance expenditure has actually been incurred, provided the expenditure has been financed through eligible external debt.
4. Important Limitation — Only Road Projects
The benefit is not available to all infrastructure assets.
The circular specifically defines a "Road Project" as a project falling within the "Roads and bridges" infrastructure sub-sector specified in the Ministry of Finance notification dated 19 September 2025, including subsequent amendments or additions.
Similarly, "Major Maintenance Expense" is specifically defined as expenditure on maintenance of a road project which:
- is not routine maintenance, and
- is undertaken in accordance with the obligations and requirements contained in the relevant concession agreement.
Accordingly, InvITs should not interpret the amendment as permitting a general add-back of maintenance expenditure. The regulatory concession is narrowly constructed around qualifying major maintenance expenditure relating to eligible road projects.
5. Unitholder Approval — A Critical Governance Requirement
One of the most significant safeguards is the requirement for prior approval of unitholders under Regulation 22(5) of the InvIT Regulations.
The resolution must receive at least 60% of the total votes cast in favour. Such approval is required before adding back the qualifying major maintenance expenditure funded through external borrowing.
Importantly, the approval is required project-wise for each project in respect of which the investment manager proposes to raise borrowing for major maintenance.
This requirement substantially strengthens unitholder oversight over the decision to replace reserve-based funding of maintenance with debt funding.
6. Extensive Disclosure Requirements
The explanatory statement accompanying the unitholder notice must provide detailed information, including:
- names and details of the relevant projects, SPVs and HoldCos;
- the proposed or existing major maintenance borrowing;
- categories of expenses proposed to be treated as major maintenance;
- project-wise and year-wise estimates of major maintenance expenditure;
- the potential effect on the InvIT's future growth capacity;
- present and future impact on distributions; and
- alternative sources of funding if debt is unavailable in future.
These disclosure requirements are particularly important because the mechanism can create a timing difference between current distributions and future cash obligations.
7. Impact on Distributions
The circular expressly recognises the possibility that debt-funded major maintenance could result in higher distributions in the years preceding the actual maintenance expenditure, because the InvIT would not need to build corresponding maintenance reserves.
However, once the loan is taken, repayments would reduce cash available for distribution in subsequent years. The circular therefore requires disclosure of the potential suppression of future distributions resulting from debt repayment.
From an investor perspective, this is perhaps the most important economic implication of the amendment:
Higher present distributions may come at the cost of lower future distributable cash flows.
Therefore, the amendment should not be interpreted simply as creating additional distributable cash. Rather, it provides InvITs with the ability to smooth the timing of cash flows by substituting debt financing for the accumulation and deployment of maintenance reserves.
8. Impact on Leverage and Future Growth
The circular makes it clear that major maintenance debt will form part of the aggregate borrowing of the InvIT and will consequently reduce the leverage headroom available for future growth.
This creates an important trade-off:
| Benefit | Potential Consequence |
|---|---|
| Higher NDCF in the period of major maintenance | Higher debt outstanding |
| Greater immediate distribution capacity | Lower future distribution due to debt servicing |
| No need to maintain large maintenance reserves | Reduced leverage headroom |
| Greater flexibility in cash management | Greater dependence on debt markets |
| Potentially smoother distributions | Future refinancing and repayment risk |
The circular therefore appropriately treats major maintenance debt as a form of financial leverage rather than as a source of free distributable cash.
9. Auditor Certification
A particularly important control is the requirement for a statutory auditor's certificate.
The auditor must certify that:
- the major maintenance expenditure is consistent with the obligations and requirements under the concession agreement; and
- the payments have been funded through external borrowings.
Only the expenditure satisfying these requirements and certified by the statutory auditor will be eligible for add-back in NDCF.
The statutory auditor may rely upon an independent expert for determining whether the expenditure is consistent with the concession agreement.
This provision should materially reduce the risk of inappropriate classification of ordinary maintenance or other expenditure as "major maintenance".
10. One-Time Approval and Subsequent Deviations
SEBI has provided some operational flexibility by permitting unitholder approval to be obtained:
- on a one-time basis covering debt already availed or proposed to be availed over the entire project life cycle; or
- for a specific major maintenance expenditure.
However, if additional borrowing is required beyond the previously approved proposal, fresh unitholder approval will be necessary before the additional debt is availed.
This provision will require investment managers to carefully forecast long-term maintenance requirements when preparing the initial proposal.
11. Restrictions on Distribution Through Borrowing
The amendment does not create a general permission for InvITs to borrow money merely for the purpose of maintaining distributions.
SEBI has expressly reiterated that Trusts and SPVs cannot distribute cash flows by obtaining external debt, except within the specific exceptions already recognised under the framework, including the newly introduced major-maintenance mechanism. Working-capital or overdraft facilities used for treasury/working-capital purposes are excluded where they are squared off within the quarter.
This distinction is crucial.
The circular therefore does not legitimise debt-funded distributions as a general financing strategy. The debt must be demonstrably connected with qualifying major maintenance expenditure.
12. Enhanced Periodic Disclosure
The circular introduces additional reporting obligations in the financial results and annual, half-yearly and quarterly reports, as applicable.
The Net Borrowing Ratio must separately identify the amount and percentage of borrowing attributable to major maintenance expenditure.
The NDCF statement must also disclose, for each relevant project/SPV/HoldCo and the InvIT:
- aggregate borrowing raised during the relevant period for major maintenance; and
- aggregate outstanding major-maintenance debt as at the reporting date.
Additionally, debt maturity profiles must specifically segregate and highlight borrowings undertaken for major maintenance.
This provides investors with greater visibility into the distinction between growth-related borrowing and maintenance-related borrowing.
13. Key Implications for Investment Managers
Investment managers of InvITs with road assets should consider the following actions:
A. Identify eligible projects
Review the portfolio to determine which assets fall within the prescribed "Roads and bridges" infrastructure sub-sector.
B. Establish a major-maintenance register
Major maintenance expenditure should be separately identified from routine maintenance and mapped against the relevant concession agreement.
C. Prepare long-term maintenance projections
The explanatory statement must contain indicative year-wise and project-wise estimates. Investment managers should therefore maintain robust long-term maintenance forecasts.
D. Assess borrowing capacity
Since major maintenance debt contributes to aggregate borrowing, its effect on leverage headroom and future acquisitions should be assessed before proceeding.
E. Obtain unitholder approval
The approval mechanism under Regulation 22(5) must be incorporated into the implementation process.
F. Establish auditor certification procedures
Documentation should be maintained to demonstrate both the eligibility of the expenditure and the fact that the expenditure was funded by external borrowing.
G. Strengthen disclosure systems
Financial reporting systems should be capable of separately tracking major-maintenance borrowings, outstanding debt, repayment schedules and their effect on NDCF.
14. Overall Professional Assessment
The circular represents a targeted relaxation rather than a wholesale change in the NDCF framework.
Its principal objective is to provide road-focused InvITs with greater financial flexibility in dealing with substantial periodic maintenance expenditure. The ability to add back debt-funded major maintenance expenditure can protect near-term NDCF and potentially avoid significant fluctuations in distributions.
However, SEBI has clearly recognised the associated risks. The framework consequently incorporates prior unitholder approval, auditor certification, detailed explanatory disclosures, leverage reporting, debt segregation and enhanced periodic disclosures.
From a governance perspective, the most important principle emerging from the circular is that the enhancement of current distributable cash must not obscure the corresponding increase in financial obligations. Major maintenance debt may improve short-term distribution capacity, but it simultaneously consumes future borrowing capacity and creates future debt-servicing requirements.
Accordingly, InvITs should view the new mechanism primarily as a cash-flow management and financing flexibility measure, rather than as an enhancement of the underlying economic profitability of the trust.
15. Compliance Takeaway
The circular is effective immediately from 14 August 2026.
For an InvIT or its Investment Manager, the immediate compliance priority should therefore be to establish a framework covering:
Eligible Road Project → Qualifying Major Maintenance → External Debt Funding → Prior Unitholder Approval → Auditor Certification → NDCF Add-back → Leverage/Distribution Assessment → Periodic Disclosure.
This sequential approach should help ensure that the benefit of the amended NDCF framework is availed of without compromising the regulatory safeguards prescribed by SEBI.
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