HoldCo Layer in InvITs: Regulatory Evolution, Structural Flexibility, and Tax Treatment Under Indian Law
Introduction
Infrastructure Investment Trusts (InvITs) in India are permitted to invest in infrastructure assets through two broad routes. The first is a direct route, under which the InvIT holds shares in a project-specific Special Purpose Vehicle (SPV) that directly owns or operates an infrastructure asset. The second is an indirect route, under which the InvIT invests through an intermediate Holding Company ("HoldCo"), which in turn holds one or more underlying SPVs.
What is notable, however, is that the HoldCo route was not available from the very beginning. It was absent from the original SEBI InvIT Regulations when they were first notified in 2014. The additional layer was introduced only after market participants engaged with SEBI and demonstrated that existing infrastructure ownership structures in India did not conform to the simpler, two-tier model that the original Regulations had envisaged. The journey from the original framework to the present one—covering the rationale, the regulatory modifications, market adoption, and tax implications—is examined below.
How the HoldCo Layer Came to Be Introduced
The Original Framework and Its Limitations
When the SEBI InvIT Regulations were first notified in 2014, the investment structure they contemplated was relatively straightforward. An SPV was required to hold at least 90% of its assets directly in infrastructure projects and was not permitted to invest in another SPV. The envisaged chain of ownership was:
InvIT → SPV → Infrastructure Project
This structure, while clean in conception, did not reflect how infrastructure businesses in India had historically been organised. After the Regulations came into force, industry participants approached SEBI with representations pointing out this disconnect.
SEBI's consultation paper dated August 20, 2015 documented that infrastructure assets in India were commonly spread across multiple project-specific SPVs, with promoters having created one or more intermediate holding companies above those SPVs. In certain cases, separate HoldCos existed for different categories of assets—such as operational projects on one side and assets still under construction on the other.
The industry's request was, therefore, not a request for a new structuring mechanism per se. It was a request to allow an InvIT to acquire an existing infrastructure portfolio through the holding company that already sat above the SPVs, rather than compelling a restructuring in which each SPV would need to be directly acquired by the InvIT.
Practical Reasons Advanced by Industry
The industry put forward several concrete reasons why an intermediate holding layer needed to be accommodated:
Concession agreement restrictions: In public-private partnership (PPP) projects, the concession agreement governing the project frequently restricts a direct change in control of the project SPV. A direct acquisition of the SPV by an InvIT could trigger such restrictions, making the transaction commercially difficult or contractually impermissible. Structuring the transaction at the HoldCo level could, depending upon the specific contractual terms, allow the SPV to continue operating under the concession without any breach of the restriction.
Consent requirements under project contracts: Certain project-level agreements—such as Power Purchase Agreements in the power sector—require prior consent from counterparties when there is a direct change in control at the SPV level. Where an InvIT sought to acquire several SPVs, obtaining individual consents from counterparties for each of them would be time-consuming and operationally burdensome. Retaining the HoldCo–SPV structure could significantly reduce the number of individual consents required.