Allowing InvITs, REITs to issue debt securities positive: ICRA

Regulator Sebi's decision to allow Infrastructure Investment Trusts (InvIT) and Real Estate Investment Trusts (REITs) to raise funds by issuing debt securities is a positive move as it would add more funding avenues as well as make the structure simpler, says ICRA.
"With InvITs/REITs now allowed to raise bonds, the structure and cash flow waterfall becomes simpler as the surplus from all the SPVs can be upstreamed to the respective InvIT/REIT, which can then be utilised to service the bonds and the balance is distributed to the unitholders," ICRA Vice-President & Sector Head (Corporate Ratings) Shubham Jain said.
"However, for this to be put to practise, the Indian Trusts Act needs to be amended accordingly," he added.

This amendment would also lead to tax efficiencies as the InvITs/REITs can now issue bonds at a lower cost and lend to SPVs with some margins.
Sebi board has also permitted the REITs to lend to the underlying holding companies (holdcos) and SPVs (special purpose vehicles), which Jain said would provide more flexibility to the REITs in managing the short-term funding requirements across its holdcos & SPVs.
Further, Sebi has permitted single asset REITs as against the earlier requirement of investing in at least two properties, with no more than 60 per cent of the total asset value invested in one property.

"This change could enable a larger pool of developers to access the REIT market; nonetheless, the market appetite for such single asset offerings remains to be seen, given that one of the key benefits expected of the REITs is the diversification of underlying assets and cash flows," Jain added.