Mumbai: The Securities and Exchange Board of India (Sebi) on Monday amended norms governing real estate investments trusts (REITs) and infrastructure investment trusts (InvITs), allowing them to raise funds through debt securities and also permitting single-asset REITs in a bid to boost the financial instruments.
The norms for REITs and InvITs, notified in September 2014, have been tweaked at least four times since then. But issuances have been lacklustre due to restrictive regulations.
Over the past three years, only two InvITs have listed on the stock exchanges—IRB InvIT Fund and Indiagrid Trust.
Although no REIT has been issued yet, the Embassy Office Parks REIT registered with Sebi on 28 July, becoming the first realty trust in the country to be registered with the markets regulator, Mint reported on 28 July.
REITs and InvITs listed on national stock exchanges will be allowed to issue debt via debt securities, according to a Sebi press statement.
“The industry has been asking for allowing REITs and InvITs to raise debt via debt securities as this route has worked well for the corporates and would aid fund raising in these instruments too. Currently the REITs and InvITs are allowed to raise funds via External Commercial Borrowings (ECB) which has certain end-use restrictions," said Bhairav Dalal, partner, real estate (tax), at consulting firm PwC India.
Real estate investments trusts are listed entities that primarily invest in leased office and retail properties, allowing developers to raise funds by selling completed buildings to investors.
Sebi has also allowed REITs with a single asset. As per the current norms, REITs were required to have at least two projects under them.
“The other important development is on allowing single asset REITs. Many developers and corporates were interested in REITs but wanted to try with one asset and the requirement of two underlying assets used to deter them," added Dalal.
The other changes in the norms include allowing strategic investors such as scheduled commercial banks and non-banking finance companies to invest in REITs and also permitting REITs to lend to their underlying holding companies.
Allowing REITs to lend to holding companies will result in efficient fund flows, according to Dalal.
The market regulator also proposes to allow REITs with 50-50% shareholding. The current norm requires a REIT to have a holding company with a 51% stake.
Sebi also said it would put out a consultation paper to work out whether REITs can be allowed to invest at least 50% of the equity share capital or interest in the underlying holding company.
This was needed as many companies willing to issue a REIT were 50-50 joint ventures and neither party was willing to let go of control and relinquish the 1%.