SEBI proposes changes to definition of 'strategic investor' under REIT and InvIT norms

In a consultation paper released on Friday (August 01), SEBI has proposed broadening the definition of 'strategic investor' under REIT and InvIT norms to include Qualified Institutional Buyers (QIBs) and certain Foreign Portfolio Investors (FPIs) in order to to attract more institutional capital to these asset classes.

According to the present definition, infrastructure finance companies registered with the Reserve Bank of India (RBI) as non-banking financial company (NBFC), scheduled commercial banks, development financial institutions, systemically-important NBFCs registered with RBI, FPIs, insurance companies and mutual funds, which invest in the offer size of the Real Estate Investment Trusts (REITs) or Infrastructure Investment Trusts (InvITs) are classified as of 'strategic investor' for REITs and InvITs.

Strategic investors are those investors who get allocation of a REIT or the InvIT before the issue opens for subscription for other market participants.

Strategic investors are mandatorily required to invest at least 5 per cent of the total offer size of the InVIT or REIT. They can invest up to 25 per cent of the total offer size. Such investors also have to hold their units for a lock-in period of 180 days from the date of listing of the units.

As per SEBI, the intent behind having such category of investors was to instill confidence in the other set of investors.

The securities market regulator stated that the present definition of strategic investors is narrow and excludes several potential investors who come under the QIB category such as public financial institutions, insurance funds, provident funds, and pension funds.

The regulator added that these institutions already invest in REITs and InvITs, as such investments align with their investment mandates.

Thus, such investors do not get a chance to apply under the 'strategic investor' category for REITs and InvITs and on the other hand, the trusts are also not able to raise capital from such investors.

SEBI has proposed to change the current definition of strategic investors for REITs and InvITs to enhance the ease of doing business and to raise capital from a wider pool of investors.

Thus, in its latest consultation paper, the market regulator has proposed that the QIBs, as per ICDR Regulations, should also be allowed to participate as 'strategic investors' in REITs and InvITs.

SEBI further added that FPI's should also be included as 'strategic investors' for REIT Regulations and the InvIT issues.

The market regulator has proposed that only FPI's who are not individuals, corporate bodies or family offices will be allowed to participate as 'strategic investors' in these issues.

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