Sebi proposes relaxed norms for REITs, InvITs to increase access to investors

Sebi has proposed a new set of framework for REITs and InvITs in order to provide flexibility to the issuers in terms of fundraising and increasing the access of these investment vehicles to investors. Under the proposal, minimum allotment and trading lot for publicly issued REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts) will be reduced.  Besides, it has been proposed that the leverage limit for InvITs will be increased from the existing 49 per cent to 70 per cent.

Sebi had notified REITs Regulations in 2014, allowing setting up and listing of such trusts which are very popular in some advanced markets. However, to date, as many as three InvITs have issued and listed their units raising about Rs 10,000 crore and one REIT is in the process of making a public offer. Despite various relaxations given by the markets regulator, these investment vehicles have failed to attract investors.

Accordingly, the Securities and Exchange Board of India (Sebi) has come out with fresh consultation paper to amend regulations pertaining to REITs and InvITs and sought comments from the public till February 18. The final norms will be put in place after taking views of all the stakeholders.  These proposals are aimed at providing flexibility to the issuers in terms of fundraising and increasing the access of these investment vehicles to investors.

"At the time of initial/follow-on issue, the minimum application and allotment lot shall be of 100 units and the value of one such lot shall be within the range of Rs 15,000-20,000," the proposal noted.  After initial listing, a trading lot should also be of 100 units, it added.

Currently, in the case of a REIT issue, the minimum subscription from any investor in an initial offer and follow-on public offer is not less than Rs 2 lakh, while the same is Rs 10 lakh in case of InvIT. Further, the prescribed trading lot for the purpose of trading of units of the REIT on the stock exchange is Rs 1 lakh, while the same is Rs 5 lakh for InvIT.

The trading lot for existing publicly issued and listed units should be reduced by the stock exchange within a period of six months from the date of notification of the regulations. Further, it has been proposed that the leverage limit for InvITs should be increased from the existing 49 per cent to 70 per cent. The enhanced limit will be available specifically for the acquisition of new infrastructure assets.

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Such InvITs which are increasing their leverage beyond 49 per cent will have to make additional disclosures about financial results on a quarterly basis along with specific details of debt service coverage ratios and interest service coverage ratios and quarterly valuation of assets, as per the proposal.

To enable unlisted privately placed InvITs, Sebi has proposed a separate framework that includes that the number of investors in such InvITs should be as determined by the issuer including the extent of investment by a single investor.  Among other proposals are the minimum investment by an investor should not be less than Rs 1 crore; leverage should be determined by the issuer after consultation with investor and listing of units of such InvITs on recognised stock exchanges should not be permitted.

Existing privately placed listed InvITs may choose to migrate to the proposed framework for private unlisted InvITs, if they obtain the approval of more than 90 per cent of their unitholders by value and exit may be provided to dissenting unitholders, Sebi said. Consequently, the units of such privately placed InvITs should get delisted from stock exchanges.

Conversely, a privately placed unlisted InvIT, may choose to list its units on stock exchanges, after complying with the requirements as applicable for a privately placed and listed InvIT, it added.