Sebi to relax REIT, portfolio manager norms to woo investors

Aim is to make REITs more attractive to investors by allowing them to invest a large portion of funds in under-construction assets

To deepen Indian capital markets, Securities and Exchange Board of India (Sebi) has lined up wide-ranging relaxations to its norms for Real Estate Investment Trusts (REITs), while an easier set of compliance rules is in the works for foreign fund managers keen to relocate to India.

Among the changes, which would be considered by Sebi at its next board meeting scheduled for this week, the regulator is looking to make REITs more attractive to investors by allowing them to invest a large portion of funds in under-construction assets.

Besides, REITs would be allowed to have a larger number of sponsors, while regulations regarding the minimum public offer size and related party transactions could also be eased, a senior official said.

With regard to foreign fund managers willing to relocate to Indian shores, the Sebi board will consider allowing them to function as 'portfolio managers' under a simpler regulatory regime, a move that will make it easier for such entities to operate in India.

Besides, an existing Sebi-registered portfolio manager will also be allowed to act as an eligible fund manager with prior intimation from Sebi and subject to certain conditions.

Sebi would also present its annual accounts for the fiscal 2015-16 before its board, which comprises nominees from the government and the Reserve Bank of India in addition to the whole-time and independent members.

Regarding REITs, Sebi plans to remove the restriction on the special purpose vehicle (SPV) to invest in other SPVs holding the assets, which in turn would allow REITs to invest in a holding company owning stake in SPVs.

It is being proposed that the REIT would hold controlling interest and at least 50 per cent equity in the holding company. The holding company can in turn hold controlling interest and at least 50 per cent equity in underlying SPV.

Another proposed move is to allow the REITs to have up to five sponsors, as against the current norm for maximum three.

Sebi also plans to rationalise the requirements under the related party transactions, under which approval of 60 per cent unitholders, apart from related parties, is required for passing a related party transaction.

Further, approval is required of 75 per cent unitholders, apart from related parties, for passing special resolutions such as change in investment manager, investment strategy and delisting of units.

Another current provision requires that units offered to the public should be at least 25 per cent. This would be aligned with Sebi regulations about the public offer size of 25 per cent, or 10 per cent initially with an eventual raising of public holding to 25 per cent.

One of the major proposals relate to allowing REITs to invest up to 20 per cent in under-construction projects.

Existing regulations require at least 80 per cent of the value of REIT assets should be invested, in proportion to the holding of the REITs, in completed and rent-generating assets.