SEBI Mandates Framework Change: InvITs Can Now Add Back Debt for Major Maintenance Costs in NDCF Calculation

SEBI Mandates Framework Change: InvITs Can Now Add Back Debt for Major Maintenance Costs in NDCF Calculation​

The Securities and Exchange Board of India (SEBI) has introduced critical amendments to the Master Circular governing Infrastructure Investment Trusts (InvITs). These changes fundamentally alter how Net Distributable Cash Flows (NDCFs) are calculated, specifically allowing InvITs and their associated Special Purpose Vehicles (SPVs) or HoldCos to account for major maintenance expenses in road projects that are funded by external debt.

The circular, issued on August 14, 2026, responds directly to industry requests seeking a more comprehensive framework that recognizes necessary long-term upkeep of infrastructure assets. This move is intended to enhance the financial viability and distribution potential of InvITs across the sector.

Understanding the NDCF Calculation Amendments​

The core change focuses on modifying the existing calculation frameworks detailed in Chapter 3 of the Master Circular dated July 11, 2025. SEBI has introduced specific line items across both the HoldCo/SPV level and the Trust Level computation tables.

At the HoldCo/SPV level, a new entry allows for the addition of payments made towards major maintenance expense for road projects when those expenses are financed by external borrowing. Similarly, the calculation at the Trust level has been updated to incorporate this crucial item into its methodology.

These additions ensure that the financial health and cash flow generation capacity of the InvITs accurately reflect these significant upkeep costs, provided strict regulatory guidelines are met.

Compliance Requirements for Major Maintenance Cost Add-Back​

The amendments introduce stringent conditions surrounding the utilization and accounting of major maintenance expenditures funded by debt. This ensures transparency and investor protection while supporting necessary infrastructure preservation.

For a payment to be allowed as an add-back in NDCF calculation, several layers of compliance must be met. Firstly, the road project must fall under the 'Roads and bridges' sub-sector as defined by the Ministry of Finance notification dated September 19, 2025. Secondly, the expense must be identified as major maintenance—a non-routine cost required by the concession agreement.

Unitholder Approval and Disclosure Mandates​

Perhaps the most significant aspect is the mandatory involvement of unitholders in projects where such debt is raised. To utilize this add-back feature, prior approval from InvIT unitholders is required, stipulating that votes cast in favor must be at least sixty per cent of total votes cast for the resolution.

The regulatory framework demands extensive disclosure regarding these expenses. The Explanatory Statement accompanying the notice must detail all categories of major maintenance expenses and provide indicative year-wise estimates of borrowing proposed. Crucially, it must also disclose the potential impact of this debt on future growth and distribution to unitholders.

Auditing and Reporting Obligations​

To uphold accountability, SEBI has mandated clear auditing requirements for the expenditure. A certificate from a statutory auditor is required to certify that the incurred major maintenance expenses adhere to the obligations set out in the concession agreement and were funded through external borrowings.

Furthermore, robust disclosure mandates have been introduced for reporting purposes. InvITs must report the aggregate amount of borrowing raised and the outstanding debt for Major Maintenance expenses within their financial results. The Net Borrowing Ratio calculation must specifically segregate the portion relating to major maintenance costs.

Future Implications for the Sector​

This SEBI circular establishes a clear path forward for managing large-scale infrastructure upkeep financing within the InvIT ecosystem. By formally allowing these necessary expenditures—which are analogous to capital expenditure but cannot be capitalized—to be accounted through debt and subsequent NDCF adjustments, SEBI is promoting financial realism in the sector. The guidelines ensure that while the ability to service this specialized debt is recognized, the market remains fully informed regarding its impact on long-term leverage and future distributions.