New Delhi: With an aim to make Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), more attractive for raising capital, Sebi has notified revised and easier regulations for these instruments.
To facilitate growth of REITs and InvITs, the Sebi had approved relaxations to existing norms in September after extensive public consultations. Sebi had notified the REIT and InvIT Regulations in 2014, allowing setting up of and listing of such trusts, which are very popular in some advanced markets.
However, no single trust has been set up as of now as investors wanted further measures, including tax breaks, to make these instruments more attractive. Sebi has granted approval to four companies—IRB Infrastructure, GMR, MEP Infrastructure and Reliance Infrastructure—to launch InvITs.
In this regard, the market regulator has notified amended regulations pertaining to REITs and InvITs. The new provisions include allowing REITs and InvITs to invest in two-level (special purpose vehicle, SPV) structure through holding company. This is subject to sufficient shareholding in the holding company and the underlying SPV. It removed the limit on the number of sponsors.
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At present, three sponsors are required. Besides, such trusts are allowed to have right to appoint majority directors in the special purpose vehicle (SPV). REITs and InvITs can invest in properties and infrastructure projects, respectively, through the holding company provided the ultimate holding interest of these trusts in the underlying SPV(s) is not less than 25%.
Further, the holding company will be allowed to distribute 100% cash flow realised from the underlying SPVs and at least 90% of the remaining cash flow. The Securities and Exchange Board of India (Sebi) also rationalised the requirements under the Related Party Transactions. Any listed REIT and InvIT, which has public holding below 25%, will have to increase its holding to at least 25% within three years from the date of listing pursuant to the initial offer.
With regard to InvITs, Sebi has reduced mandatory sponsor holding to 15% from 25%. It also rationalised the requirements for private placement of InvIT. It is also amending the definition of the valuer. The offer documents of REITs and InvITs will contain adequate disclosures towards the utilisation of such over-subscription proceeds, if any, and such proceeds retained on account of over-subscription will not be utilised towards general purposes.