Sebi relaxes InvITs, REITs rules; sops to foreign investors

To float consultation paper on compensation agreement

The Securities and Exchange Board of India (Sebi) board meeting on Friday amended the regulations for infrastructure investment trusts (InvITs) and real estate investment trusts (REITs) to facilitate their growth and allowed foreign portfolio investors (FPIs) to directly trade in debt markets.

The regulator also discussed floating a consultation paper on corporate governance issues in compensation agreements such as non-compete fees at the board meeting held at the new National Institute of Securities Market campus in Navi Mumbai.

Sebi amended the rules for FPIs to trade directly in corporate bonds. According to the new rules, Category I and Category II FPIs can now access debt markets directly without any brokers, while direct participation for Category III would be allowed only through e-book platform of stock exchanges.

"It could boost foreign inflows in the Indian capital markets. From an ease of doing business perspective, it is a step ahead as it will also streamline tax computation and deepen the Indian debt market. It may also have an undesirable impact on the Indian broking sector, as this facility will not bring revenue to them," said Sumit Agrawal, partner, Suvan Law Advisors.

According to the new regulations, InvITs and REITs can now invest in a two-level special purpose vehicle (SPV) structure through the holding company. The holding company in both vehicles would have to distribute 100 per cent cash flows realised from the underlying SPVs and at least 90 per cent of the remaining cash flows.

Sebi also reduced mandatory sponsor holding in InvITs to 15 per cent, removed the limit on the number of sponsors and rationalised the requirements for private placement of InvITs.

For REITs, the regulator removed the limit on the number of sponsors, introduced the concept of sponsor group, and allowed investment up to 20 per cent in under-construction assets.

SEBI BOARD MEET

FPI to trade directly in corporate bonds
* Category I, II FPIs can now access debt markets directly without brokers. Category III allowed access only via e-book exchange

Consultation paper on compensation agreement
* To deal with issues like non-compete fees and to safeguard minority shareholders interest

Permanent registration/single licence to market intermediary
* Will encourage ease of doing business

Raised the maximum shares that employees can bid in their company’s IPO to ~5 lakh from the existing ~2 lakh
* Aims to expand investor base in publicly listed firms

Relaxation in REITs and InvITs norms
* Aim to encourage more participation

Changes in portfolio manager regulations
* Help fund managers migrate to India
"Sebi is not happy with managements for getting something over and above what all shareholders get," said U K Sinha, chairman of Sebi. He was answering questions on his views where the management of a particular company was being paid non-compete fee after selling his company to a competitor.

The proposed consultation paper would seek public comment on amendments to the (Listing Obligations and Disclosure Requirements) Regulations, Sinha added.

The regulator said it would also float a consultation paper on investment advisors to address gaps or overlaps in regulatory standards of intermediaries, which provide investment advisory services. The paper would seek a re-examination of the exemptions provided to mutual fund distributors and also Sebi-registered intermediaries for providing advice, as an incidental activity to their primary business.

The Sebi board on Friday raised the maximum shares that employees could bid in their company's initial public offering (IPO) to Rs 5 lakh from the existing Rs 2 lakh, with an aim to expand investor base in listed firms.

In line with the central government's announcement during the Budget to encourage fund managers to operate from India, Sebi approved amendments to the portfolio manager regulations. The regulator has now inserted a new chapter into the definition of eligible fund managers.

In another important development, market intermediaries, including merchant bankers, registrars, credit rating agencies, depository participants and portfolio managers, can now obtain permanent registration with Sebi.

The regulator also increased foreign investors' shareholding limit in Indian stock exchanges to 15 per cent from the earlier five per cent. This is in line with the initiative announced by Finance Minister Arun Jaitley in Budget 2016-17.

The move assumes significance, as it would come at a time when both the National Stock Exchange and the BSE will be coming out with their IPOs.