Sebi proposes to relax regulations for infra investment trusts

Proposes to relax sponsor commitment and allow two level SPVs

The Securities and Exchange Board of India (Sebi) on Thursday proposed to relax the regulations for infrastructure investment trusts (InvITs).

In a consultation paper, it proposed that InvITs could be allowed investments through twin-level Special Purpose Vehicles (SPVs). Additionally, the sponsor commitment could be reduced from 25 per cent to 10 per cent.

WHAT THE SEBI PROPOSES

• It says infrastructure investment trusts (InvITs) be allowed to invest through 2-level special purpose vehicles (SPVs).
• Sebi proposes InvIT hold not less than 50% in holding company and the latter hold not less than 50% in the SPV
• Sebi proposes sponsor commitment be cut from 25% to 10%

If the proposal leads to an amendment in the InvITs regulations, notified in September last year, the investment instrument would be allowed to invest in a holding company which is investing in an underlying SPV.

Sebi has considered this after discussion with entities in the sector. They'd represented to the regulator that if investment in the holding companies (holdco) was not allowed, it could lead to tax inefficiencies, lender considerations and difficulties in exit for financial investors.

According to those in the sector, infrastructure assets in India are usually held through different SPVs, where the promoters create separate holdcos, which in turn hold stake in the underlying SPVs.

However, the regulator has put caveats that an InvIT must hold controlling interest and not less than 50 per cent of the equity share capital or interest in the holdco. And, the holdco shall, in turn, hold controlling interest and not less than 50 per cent of the equity share capital or interest in the underlying SPV.

The holding company should not be engaged in any other activity other than holding of the SPV.

The minimum sponsor holding in the InvIT has been proposed to be reduced to 10 per cent, so as to make it attractive for the sponsors to float such instruments.

Business had argued that the majority of infrastructure financing was through debt, sometimes as high as 80 per cent of the total capital employed. So, a requirement of 25 per cent sponsor commitment becomes too onerous.