The initial public offering of Mindspace Business Park REIT slated for March has hit a roadblock after the Union budget proposed to tax dividends at the receiver’s end, two people aware of the development said. The REIT was expected to raise ₹1,000 crore by selling new shares, while existing shareholders K. Raheja Corp. and Blackstone were to offload some of their shareholding.
In the 2020-21 budget, finance minister Nirmala Sitharaman proposed to remove dividend distribution tax (DDT) at the company level, while individual investors will have to pay taxes on dividends received as per their respective tax rates, making them unattractive for investors from a taxation perspective.
“The Mindspace REIT initial public offering is definitely contingent on a rollback of DDT removal or exemptions for business trusts. The budget announcement on DDT has impacted investor sentiment. While the initial plan of Mindspace was to hit the markets before 31 March, the deal is now expected to spill over to the next financial year," the first person added. The travails of Mindspace REIT indicate a larger threat to the attractiveness of REITs, which were seen as one of the ways to mobilize capital for the real estate sector. Many global funds and investors have argued that the budget has rendered REITs less lucrative as an investment tool. So far, the country has seen only one public REIT listing, when Blackstone-backed Embassy Office Parks REIT went public in March 2019. Proposed changes in dividend taxation could severely impact the nascent REIT industry.
On 31 December, Mindspace Business Park REIT filed its draft prospectus with the Securities and Exchange Board of India (Sebi). Blackstone owns around 15% in various special purpose vehicles (SPVs) that are part of the Mindspace REIT.
As part of the IPO, Blackstone entities—BREP Asia SBS Pearl Holding (NQ) Ltd, BREP VIII SBS Pearl Holding (NQ) Ltd, BREP Asia SG Pearl Holding (NQ) Pte. Ltd—planned to sell part of their holdings. The final quantum of the stake sold by these Blackstone entities is yet to be decided, according to the draft prospectus.
“While a few meetings have already been held with investors, there are no active investor roadshows happening right now for this deal," the first person mentioned above added.
Blackstone declined to comment. Vinod Rohira, managing director and CEO, commercial real estate & REIT at K Raheja Corp said," It is still work in progress. I cannot comment further."
Several prominent builders and industry executives have called for a roll-back of the government’s decision. Last week, real estate associations including National Real Estate Development Council (NAREDCO) and Asia Pacific Real Estate Association (APREA) have given presentations asking the finance ministry to reconsider its decision as it would impact future REIT/InvIT issuances.
APREA, in a statement, said that the government’s move to levy multiple levels of taxation for business trusts “is a retrograde step and would make investments in InvITs/REITs unattractive."