The Securities and Exchange Board of India (SEBI) issued a landmark circular on 15 May 2026 clarifying and expanding the permitted uses of fresh borrowings for Infrastructure Investment Trusts (InvITs) when their net borrowings already exceed 49% of the value of InvIT assets.The circular bearing number SEBI/HO/DDHS/DDHS-PoD-2/P/CIR/2026/117 clarifies and operationalises the expanded permitted uses of fresh borrowings under Regulation 20(3)(b)(ii) of the SEBI (Infrastructure Investment Trusts) Regulations, 2014 and is effective immediately upon issue.
🔴 Quick Summary — What You Need to Know
What Changed
InvITs with net borrowings above 49% can now also borrow for capex, major road maintenance, and debt refinancing — not just acquisition or development of infrastructure projects.
Why It Matters
Earlier rules created a funding gap for InvITs needing capital for asset upkeep and debt management once they crossed the 49% threshold.
Who Is Affected
All InvITs (public & private), their HoldCos, SPVs, investors, lenders, and compliance officers / CS professionals advising InvITs.
🏛️ Section 1 — Background: What is an InvIT and What Was the Old Rule?
1A. What is an InvIT?
An Infrastructure Investment Trust (InvIT) is a SEBI-regulated investment vehicle — similar to a mutual fund — that pools money from investors and invests it in income-generating infrastructure assets such as roads, power transmission lines, pipelines, telecom towers, and warehouses. InvITs hold these assets either directly or through Special Purpose Vehicles (SPVs) and Holding Companies (HoldCos), and distribute at least 90% of their net distributable cash flows to unitholders (investors).
SEBI has highlighted the growing scale of the REIT and InvIT ecosystem in India; however, market-wide counts and AUM figures change over time, so any such numbers should be cross-checked with the latest SEBI or industry data before publication.
1B. The 49% Borrowing Threshold — What Was the Old Rule?
Under Regulation 20 of the SEBI (InvIT) Regulations, 2014, InvITs are subject to two borrowing thresholds:
Tier 1 — Up to 25% of Asset Value
InvIT can borrow freely. No special conditions apply.
Tier 2 — Above 25% and up to 49% of Asset Value
Borrowing above 25% is subject to additional regulatory conditions under Regulation 20. Where borrowings reach higher levels, the applicable conditions relating to rating, track record, and unitholder approval must be read together with the InvIT Regulations and the latest SEBI circulars.
⚠️ Tier 3 (The Old Rule) — Net Borrowings Exceeding 49%
Under the earlier framework, once net consolidated borrowings of the InvIT, its HoldCo and all SPVs (net of cash and cash equivalents) exceeded 49% of the value of InvIT assets, further borrowing was interpreted narrowly and was generally restricted to acquisition or development of infrastructure projects. This created practical uncertainty for InvITs seeking to fund capital expenditure on existing assets, major road maintenance, or refinancing.
1C. Why Did SEBI Amend This?
Industry representations had sought clarity that refinancing of existing debt and borrowing for asset improvement, major maintenance, and capacity augmentation should be treated as permitted uses under Regulation 20(3)(b)(ii) even when net borrowings exceed 49%. SEBI later formalised this position through its May 15, 2026 circular, which is effective immediately.
📋 Section 2 — Key Changes: What is Now Permitted Beyond the 49% Threshold?
The circular expands the permitted uses of fresh borrowings under Regulation 20(3)(b)(ii) to now include three additional categories — in addition to the already-permitted "acquisition or development of infrastructure projects":
✔ Permitted Use 1 — Capital Expenditure (Capex)
InvITs (and their HoldCos/SPVs) can now raise fresh borrowings — even beyond the 49% threshold — for capital expenditure on existing infrastructure assets.
What qualifies as Capex?
- Expenditure that enhances asset performance or provides capacity augmentation, e.g., widening a toll road from 4 lanes to 6 lanes
- Expenditure that extends the useful life of the infrastructure asset
- Capital improvements that generate future economic benefits — not day-to-day operating expenses
📌 Example: A road InvIT's SPV wants to add a service road along its expressway to reduce traffic bottlenecks. This is capex that improves the asset. Previously, if net borrowings were already above 49%, this could not be funded via fresh debt. Now it can.
✔ Permitted Use 2 — Major Maintenance (Road Sector)
Fresh borrowings can now be used for major maintenance expenses in the road sector. This is specifically carved out for road InvITs given their unique contractual obligations under concession agreements.
Important conditions:
- Must be non-routine in nature (not regular day-to-day maintenance)
- Must be carried out as per the concession agreement between the SPV and the government/NHAI
- Typically includes periodic resurfacing, overlay work, bridge rehabilitation mandated by the concessioning authority
📌 Example: A highway InvIT's SPV has a contractual obligation under its NHAI concession agreement to undertake bituminous overlay every 5 years across 200 km of highway. This is "major maintenance" — non-routine, contractually mandated, expensive. This circular now permits borrowing for such expenses even above 49%.
✔ Permitted Use 3 — Refinancing of Existing Debt
Fresh borrowings can be used to refinance existing debt — i.e., repay an old loan by raising a new one, typically to obtain better interest rates or improved terms — even when net borrowings exceed 49%.
Critical conditions for refinancing (Read carefully):
- Only the principal amount of the existing debt can be refinanced
- Outstanding interest, fees, charges, and prepayment penalties cannot be funded through the fresh borrowing — these must be paid from other sources
- Essentially: new loan amount ≤ old loan principal outstanding
Example: An InvIT's SPV has an existing project loan of ₹500 crore at 9.5% p.a., with ₹400 crore principal outstanding. It wants to refinance at 8.2% p.a. to reduce interest cost. Under this circular, the SPV can raise a fresh loan of up to ₹400 crore, i.e., the outstanding principal amount, to repay the old loan even if net InvIT-level borrowings are above 49%.
📊 Section 3 — Before vs After: Complete Comparison
🔄 Section 4 — Decision Flowchart: Can an InvIT Raise Fresh Borrowings?
Use this step-by-step flow to determine whether a fresh borrowing is permissible under the post-circular framework:
Net Borrowings ≤ 49%
Borrowing is permitted subject to applicable conditions under Reg. 20(3)(b)(i). No restriction on end-use (with AAA rating, 6-distribution track record, unitholder approval for 25–49% band).
Net Borrowings > 49%
Strict end-use restriction applies under Reg. 20(3)(b)(ii). Proceed to Step 3.
✅ PERMITTED (Post-Circular)
- Acquisition of infrastructure projects
- Development of infrastructure projects
- Capital expenditure on existing assets (NEW)
- Major maintenance — road sector (NEW)
- Refinancing — principal only (NEW)
❌ NOT PERMITTED
- Refinancing of interest / fees / charges
- Routine day-to-day maintenance / opex
- Dividend / distribution payments
- General corporate purposes
💡 Section 5 — Practical Examples
📘 Example 1 — Road InvIT Raising Debt for Mandatory Overlay Work
Situation
XYZ Road InvIT operates 800 km of national highway through an SPV. Its net consolidated borrowings stand at 52% of asset value (above 49%). Under its NHAI concession agreement, the SPV is contractually required to undertake bituminous overlay on 300 km of road — a major maintenance activity costing ₹120 crore.
Before vs After
Before circular: SPV could not raise fresh debt for this purpose — only equity or internal accruals could be used, straining cash flows.
After circular: SPV can raise ₹120 crore in fresh debt specifically for this major maintenance work — since it is non-routine and mandated by the concession agreement.
📘 Example 2 — Power Transmission InvIT Refinancing Old Debt
Situation
ABC Power InvIT has a HoldCo with a ₹800 crore project loan at 9.8% p.a., with ₹650 crore outstanding principal. Net borrowings are at 55% of asset value. Market rates have fallen and the HoldCo can now refinance at 8.0% p.a., saving ~₹11.7 crore in annual interest.
What is Allowed
HoldCo can raise up to ₹650 crore in fresh debt to repay the old loan principal.
The ₹650 crore new loan replaces the ₹650 crore old principal.
Outstanding interest / prepayment fees on the old loan must be paid separately from InvIT's own cash — they cannot be included in the new borrowing.
⚠️ Section 6 — Refinancing Conditions: The Critical Guardrails
While debt refinancing is now a permitted use, the circular imposes specific guardrails to prevent misuse. CS students and compliance officers must memorise these precisely:
✅ ALLOWED in Refinancing
- Refinancing the outstanding principal of existing debt
- Fresh borrowing amount ≤ Outstanding principal of old loan
- The principal-only restriction is an important safeguard because it limits refinancing to the outstanding principal amount and prevents the fresh borrowing from being used to refinance interest, fees, or charges
- Refinancing debt originally raised for infrastructure development
❌ NOT ALLOWED in Refinancing
- Refinancing accrued interest on old debt
- Refinancing processing fees / arrangement fees
- Refinancing prepayment penalties / charges
- Borrowing more than the outstanding principal to "top up" liquidity
⚠️ Exam Tip: A common mistake is to assume that "refinancing" means rolling over the entire old loan including accrued interest. Under this circular, only the principal portion can be refinanced. Interest and fees must be discharged from the InvIT's / SPV's own cash resources. This distinction is critical for exam answers and real-life compliance.
📊 Section 7 — Impact Analysis
✅ Benefits
- Financial flexibility for InvITs at higher leverage levels
- Road InvITs can fulfil concession obligations without equity dilution
- Debt refinancing enables interest cost reduction — improving distributable cash flows for investors
- Resolves regulatory ambiguity that was causing operational deadlocks
- Provides greater funding flexibility for InvITs while retaining key borrowing guardrails
- May support infrastructure investment execution by easing funding constraints for highly leveraged InvIT structures
⚠️ Risks & Safeguards
- Risk of misclassification — routine maintenance claimed as "major maintenance"
- Leveraged InvITs could face debt servicing stress if refinancing is not at better terms
- Investor risk increases if InvIT borrowings are used loosely — mitigated by the principal-only restriction
- AAA rating, 6-distribution track record, and unitholder approval conditions remain as guardrails
👥 For Investors (Unitholders)
- Better asset maintenance → sustained cash flows and distributions
- Refinancing at lower rates → higher distributable income
- Unitholder approval requirement ensures democratic oversight
- AAA rating condition protects against credit quality dilution
🏗️ Market Impact
- Highly leveraged InvITs, especially those with ongoing capex, road-sector maintenance obligations, or refinancing needs, are likely to benefit the most from the expanded end-use flexibility
- Road sector InvITs (India's largest InvIT category) benefit most from maintenance carve-out
- May attract more institutional investment into InvIT units as debt management flexibility improves
- Credit markets may see higher refinancing activity from InvIT borrowers
📅 Section 8 — Effective Date
Effective Immediately — May 15, 2026
This circular is effective from the date of its issue, i.e., May 15, 2026. There is no transitional period or deferred effective date. InvITs that have been holding back fresh borrowings due to the earlier restriction — particularly for capex or refinancing purposes — can now proceed immediately, subject to compliance with all other applicable conditions under Regulation 20 of the InvIT Regulations.
InvIT managers and compliance officers should update their borrowing policy documents, board resolutions, and unitholder communication templates to reflect these expanded permitted end-uses at the earliest.
📝 Conclusion
Bottom Line
SEBI's May 15, 2026 circular is a targeted, practical fix to a long-standing operational constraint for InvITs.
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Capex and major maintenance now fundable beyond 49% — asset quality protected
♻️
Debt refinancing permitted — InvITs can optimise their cost of capital without increasing leverage
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Guardrails intact — principal-only refinancing (which inherently prevents leverage increases), AAA + unitholder approval
The circular is consistent with SEBI's broader recent ease-of-doing-business measures for REITs and InvITs, while still retaining investor-protection guardrails under the InvIT regulatory framework.
❓ Frequently Asked Questions
Source: SEBI Circular No. SEBI/HO/DDHS/DDHS-PoD-2/P/CIR/2026/117, dated May 15, 2026 — Permitted use of fresh borrowings for InvITs where Net Borrowings exceeds 49% of the value of InvIT assets. Available at sebi.gov.in. For more regulatory updates, visit corplawupdates.in. This article is for informational purposes only and does not constitute legal or financial advice.
