Sebi finalises draft norms for Infra Investment Trusts

Taking forward a proposal made in the Union Budget, market regulator Sebi today came out with draft guidelines for Infrastructure Investment Trusts (InvITs) which will enable creation of a new investment product for arranging long-term financing for infrastructure projects.
These InvITs can be listed on the stock exchanges, will get tax benefits and will invest the funds collected from investors in infrastructure projects, including PPP (Public Private Partnership).
As per the draft regulations, on which Sebi has sought public comments till July 24, the listing shall be mandatory for both publicly offered and privately placed InvITs.
"An InvIT prior to making an offer of units, either through public issue or private placement, may have strategic investors such as banks, international multilateral financial institutions, FPIs including sovereign wealth funds, which together invest not less than 5 per cent of the size of the InvIT or such amount as may be specified by Sebi," the regulator said.

"The proposed holding of an InvIT in the underlying assets shall be not less than Rs 500 crore and the offer size of the InvIT shall not be less then Rs 250 crore at the time of initial offer of units.
"The aggregate consolidated borrowing of the InvIT and the underlying SPVs shall never exceed 49 per cent of the value of InvIT assets. However, this may exclude any debt infused by the InvIT in the underlying SPV.

"Further, for any borrowing exceeding 25 per cent of the value of InvIT assets, requirement of credit rating and unit holders approval has been made mandatory," Sebi said.

Sebi had come out with a consultation paper onInvITs in December last year, on which comments were sought till January 20, 2014.
Earlier this month, Finance Minister Arun Jaitley announced in his budget speech that "a conducive tax regime for Infrastructure Investment Trusts and Real Estate Investment Trusts (is being provided) to be set up in accordance with regulations of Sebi".
In pursuance to the Budget Announcement, Finance Bill for FY2014-15 has also provided various provisions in the Income Tax Act with respect to InvITs.
Based on the comments received on the consultative paper and the Budget announcement, Sebi has now finalised a separate regulatory framework for introducing InvITs in India.

InvITs would have a similar tax efficient pass through status, for PPP and other infrastructure projects. "These structures would reduce the pressure on the banking system while also making available fresh equity. I am confident these two instruments would attract long term finance from foreign and domestic sources including the NRIs," Jaitley had said.