Regulator allows insurers to invest in infrastructure funds

No investment will be made in a Reit/Invit in which sponsor is under the promoter group of insurer

The Insurance Regulatory and Development Authority of India (Irda) has cleared investment by insurance companies in Real Estate Investment Trusts (Reits) and Infrastructure Investment Trusts (InvITs), thus making an important breakthrough for the sponsors.

Insurance companies are allowed to buy into commercial real estate, and letting them invest in Reits is expected to deepen the commercial property market, according to experts.

In a circular dated March 14, Irda said an insurer could invest not more than 3 per cent of its fund size or in not more than 5 per cent of the units issued by a single Reit/InvIT, whichever is lower.

Irda has said that no investment will be made in a Reit/Invit in which the sponsor is under the promoter group of the insurer.

Irda said the Reit/Invit rated not less than AA would form part of approved investments and Reit/Invit rated less than AA would be part of other investments.

“Since insurance companies are one of the major subscribers of Reits globally, Irda's move will help those floating a Reit," said a senior executive of a real estate company planning to float a Reit.

Ruchir Sinha, co-head of private equity & mergers and acquisitions at Nishith Desai Associates, said since Reits and InvITs offered low-risk fixed income, insurance companies would look to invest in them.

While a handful of companies have filed application for InvITs, none of the companies has filed for Reits.

Companies such as Stellite Power, IRB, RInfra and IndiGrid have filed papers for creating InvITs.

Only the Embassy-Blackstone joint venture has filed for intent papers with Sebi for Reits.

According to realty consultant JLL India, around 229 million square feet of office space is currently Reit-compliant.

“Even if 50 per cent of this space is listed in the next few years, we are looking at a total Reit listing worth $18.5 billion. Moreover, India’s stock of Grade A commercial assets is increasing, with Reits acting as a sure-fire growth catalyst,” JLL said.

InvITs might give a fillip to the cash-starved infra space by infusing capital to the tune of Rs 20,000 crore over the next 18 months, said a report by rating agency Icra.