With an aim to make REITs and InvITs more attractive for raising capital, Sebi has notified revised and easier regulations for these instruments. To facilitate growth of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), the board of 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. Currently, 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. General purposes can include identified purposes for which no specific amount is allocated in the offer document. This will be subject to the condition that any issue-related expenses will not be considered as part of general purpose "merely because no specific amount has been allocated for such expenses in the offer document". The amount for general purposes will not exceed 10 per cent of the funds raised by REIT and InvIT by issuance of units. It has been made clear that there should be no multiple classes of units of REITs and InvITs while subordinate ones can be issued only to sponsors and its associates. This is also subject to the requirement that such subordinate units should carry only inferior voting or any other rights compared with other units. Among others, these trusts will have to refund subscription amount, along with interest to allottees, in case they do not receive listing permission from the stock exchange. "In the event of non-receipt of listing permission from the stock exchange(s) or withdrawal of observation letter issued by the board, wherever applicable, the units shall not be eligible for listing," the regulations stated. In such cases, REITs and InvITs will have to "refund the subscription money, if any, to the respective allottees immediately along with interest at the rate of 15 per cent per annum from the date of allotment". With regard to REITs, Sebi said the minimum number of unit holders other than sponsor(s), its related parties and associates forming part of the public will not be not less than 200. "For an REIT raising funds through an initial offer, the units proposed to be offered to the public through such initial offer shall not be less than 25% of the total of the outstanding units of REIT," Sebi noted.