SEBI Allows Debt-Funded Major Maintenance Add-Back in NDCF Calculation for InvITs (2026)

Road-owning InvITs have a cash-flow problem that doesn't show up in the usual NDCF conversation: large, lumpy resurfacing and maintenance bills that hit once every several years and are frequently funded through fresh borrowing rather than accumulated reserves. Until now, that borrowing sat awkwardly outside the Net Distributable Cash Flow (NDCF) framework, because SEBI's rules generally treat debt-funded cash as non-distributable. A new SEBI circular dated August 14, 2026 changes that specifically for road projects, letting InvITs add back major maintenance payments funded by external debt when they compute what can go to unitholders — but only if they clear a fairly demanding set of approval, certification, and disclosure hurdles first.

The change responds to an industry association's request to review the NDCF computation framework set out in Para 3.19 of the Master Circular for InvITs dated July 11, 2025, and follows recommendations from the Hybrid Securities Advisory Committee (HySAC) along with a public consultation process. Rather than rewriting the framework, SEBI has surgically inserted a new line item into both NDCF computation tables, amended two existing notes, and added a detailed new Note 12 that spells out exactly when and how this add-back can be used.

This piece walks through every change: the amended tables, the redefined notes, the full conditions in the new Note 12, and what compliance and investor-relations teams at road InvITs need to put in place before they can rely on this provision.

What Changed in the NDCF Computation Tables at HoldCo/SPV and Trust Level?

Para 3.19 sets out two parallel NDCF computation tables — one for the HoldCo/SPV level (Table I) and one for the Trust level (Table II). Both tables now carry an identical new addition line, inserted just after the existing line covering proceeds from sale of infrastructure assets or SPV shares:

In practical terms: if a road InvIT (or an SPV/HoldCo it holds) spends money on major maintenance and funds that spend through a loan rather than internal cash, the amount of that loan-funded spend can now be added back into NDCF — pushing distributable cash flow up in the year the maintenance is done, rather than leaving unitholders to absorb the full cash outflow with no offset.

What Is a "Road Project" Under the New Framework?

New Note 12(i) defines "Road Project" by cross-reference: it means a project falling within the 'Roads and bridges' infrastructure sub-sector as notified by the Ministry of Finance on September 19, 2025, and includes any future amendments or additions to that notification. This is a deliberately narrow scope — the add-back does not extend to power transmission lines, pipelines, or other infrastructure sub-sectors held by diversified InvITs; it is specific to road assets.

What Counts as "Major Maintenance Expense"?

Note 12(ii) defines major maintenance expense as expenditure on maintenance of a road project that is not routine maintenance, and that is incurred in line with the obligations and requirements specified in the relevant concession agreement. Routine, day-to-day upkeep is excluded — this provision is aimed squarely at the large periodic resurfacing and structural works that concession agreements typically mandate at fixed intervals.

What Approval Do Unitholders Need to Give Before the Add-Back Applies?

This is the gatekeeping condition, and it is not a formality. Note 12(iii) requires unitholder approval under Regulation 22(5) of the InvIT Regulations — meaning at least 60% of votes cast must favour the resolution — before an investment manager can add back major maintenance payments funded by external borrowing. Critically, this approval must be obtained separately for each project, whether the project sits at InvIT level or at SPV/HoldCo level. A blanket, trust-wide approval covering all current and future road projects will not satisfy this requirement.

What Must the Explanatory Statement to Unitholders Disclose?

Note 12(iv) requires the explanatory statement accompanying the notice for the unitholder meeting to cover six specific points:

• Names and details of the projects/SPVs/HoldCos for which the major-maintenance debt is proposed or already raised, and whether it sits at Trust or SPV/HoldCo level.
• The category of expenses that will be treated as major maintenance expenses.
• Indicative year-wise and project-wise estimates of the major maintenance expenses for which borrowing is proposed, based on the latest available valuation report.
• The possible impact on the InvIT's future growth potential from using borrowing for major maintenance — SEBI suggests InvITs may include a disclaimer explaining that this debt is similar to capex borrowing but cannot be capitalised under accounting principles, and that it reduces future leverage headroom even as it increases distributable cash in the near term.
• Present and future impact on unitholder distributions — including that distributions may run higher in the years before the maintenance spend (since no maintenance reserve is being built up), and may be comparatively subdued during the loan repayment period afterward.
• What funding alternatives exist if debt is not available in future for major maintenance — including the fact that operating cash flows may then need to be diverted to cover the expense, impacting future distributions.

How Does This Interact With the General Ban on Distributing Debt-Funded Cash?

Note 6 of the framework has always prohibited Trusts and SPVs from distributing cash flows obtained through external debt, subject to limited carve-outs — previously Notes 2 and 7, plus an exclusion for working capital/OD facilities squared off within the quarter. The amended Note 6 now adds Note 12 as a third carve-out, expressly permitting distribution of debt-funded cash where that debt funds major maintenance expense on road projects and the Note 12 conditions are met.

Note 4 — which addresses distribution of "surplus cash" available in InvITs/HoldCos/SPVs — is amended in parallel. It continues to exclude surplus cash arising from any debt raise generally, but now carves out an exception: surplus cash arising from major-maintenance payments funded by external debt may be distributed, provided the Note 12 conditions and disclosure requirements are satisfied.

What Certification and Ongoing Disclosure Obligations Apply?

Beyond the one-time unitholder approval, Note 12 layers on recurring obligations:

• Approval flexibility (Note 12(v)): unitholder approval can be taken once for the entire project life cycle, or separately for each specific major maintenance expense — but any deviation requiring additional debt beyond what was approved needs fresh unitholder sign-off before the debt is drawn.
• Net Borrowing Ratio disclosure (Note 12(vii)(a)): the Net Borrowing Ratio already required under Chapter 4 must now separately segregate the amount and percentage of borrowing taken for major maintenance expenses.
• NDCF statement notes (Note 12(vii)(b)): for each project/SPV/HoldCo and the InvIT as a whole, the notes must disclose the aggregate borrowing raised in the period for major maintenance, and the aggregate outstanding debt for major maintenance as of the reporting date.
• Debt maturity profile (Note 12(viii)): debt maturity profile disclosures already required under the InvIT Regulations must specifically segregate and highlight borrowing taken for major maintenance expenses.

Compliance Checklist

Frequently Asked Questions

CorpLawUpdates Analysis

The most consequential feature of this circular isn't the add-back itself — it's how tightly SEBI has fenced it in. Rather than opening a general door to debt-funded distributions, the regulator has carved out a single, narrowly defined use case (road-project major maintenance) and wrapped it in project-level unitholder votes, mandatory auditor certification, and layered disclosure across the explanatory statement, NDCF notes, Net Borrowing Ratio, and debt maturity profile. This mirrors a pattern we've seen in other recent SEBI InvIT/REIT flexibility measures: grant the economic relief industry asked for, but make the governance cost of using it high enough that it self-selects for genuinely necessary cases.

The compliance challenge will sit mostly with investment managers' finance and legal teams, who now need to build a repeatable process around something SEBI has essentially described as a mini-approval-and-disclosure regime rather than a one-line accounting change. Getting the explanatory statement disclosures right — particularly the growth-impact and distribution-impact analysis SEBI has suggested language for — will matter for both regulatory compliance and how credibly the InvIT can explain the trade-off to unitholders who may see a short-term distribution bump followed by a repayment-period dip.

Watch for two things going forward. First, whether SEBI extends a similar add-back mechanism to other infrastructure sub-sectors beyond roads, given that major maintenance cycles are hardly unique to road concessions — power transmission and pipeline InvITs face comparable lumpy capex-adjacent spends. Second, how InvITs use the flexibility between one-time, life-cycle approval versus per-expense approval under Note 12(v); a life-cycle approval reduces the administrative burden of repeat unitholder meetings but requires more front-loaded disclosure quality, since unitholders are effectively pre-approving a multi-year borrowing programme in a single vote.

For now, InvITs with road assets nearing a major resurfacing cycle have a genuine cash-flow lever they didn't have before — but only if governance, certification, and disclosure processes are built out well ahead of the unitholder meeting, not scrambled together after a maintenance bill is already due.