Sebi eases REITs rule, allows additional avenues for minimum public shareholding

Mumbai: In order to facilitate growth of REITs, markets regulator Securities and Exchange Board of India (Sebi) on Thursday decided to allow such trusts to invest at least 50% stake in holding companies.

Further, the capital market watchdog has proposed to provide additional avenues for listed entities to achieve minimum 25% public shareholding (MPS) requirements, Sebi chief Ajay Tyagi told reporters here after the board meeting. These additional methods are -- qualified institutions placement (QIP) and sale of shares up to two percent held by promoters or promoter group in open market.

Sebi had notified Real Estate Investment Trusts (REITs) Regulations in 2014, allowing setting up and listing of such trusts which are very popular in some advanced markets. However, not a single REIT has been listed in the country. Despite various earlier relaxations, listings have not taken place as they have failed to attract investors, Tyagi said.

Further, Sebi has decided to relax the norms for such trust and allowed REITs to “invest at least 50% stake in Holdcos/SPVs and similarly allowing Holdco to invest at least 50% stake in SPVs (special purpose vehicle)”. However, this is subject to certain safeguards. This included the existing requirement of REITs to have ultimate holding interest of at least 26% in the underlying SPV would remain unchanged.

Among other criteria, REIT manager in consultation with the trustee, would need to appoint at least such number of directors on the board of Holdco or SPVs, in proportion to the shareholding or interest such entity.

Further, in case of any inconsistencies between any shareholder or partnership agreement and the obligations cast upon REIT in the norms, the provisions of the REIT regulations would prevail. Besides, the Sebi has decided to rationalise the definition of sponsor group in case of REITs. It has proposed to enable investments by REITs in unlisted shares under the 20% investment category. The board of Sebi has approved minor amendments to the REIT and InvIT (Infrastructure Investment Trust) Regulations for harmonisation of the terms and definitions in the norms.

With regard to minimum public shareholding, the regulator said its board has approved necessary amendments to Sebi (ICDR) Regulations. “QIP offers a quick solution to listed entities enabling them to meet MPS requirements apart from meeting their funding requirements. Also, sale of a certain small percentage of shares through open market will facilitate quicker and cheaper compliance for listed entities where promoters hold shares marginally above the threshold limit,” it added.

Under Sebi norms, every listed firm would need to maintain a public shareholding of at least 25%. Listed public sector companies have been provided additional time till 21 August, 2018 to comply with the requirements. Currently, several methods are available to listed companies to comply with the requirements. This include issuance of shares to public through prospectus; offer for sale to public through prospectus; sale of shares held by promoters through secondary market institutional placement programme; rights issue to public shareholders; and bonus shares to public shareholders.