Market regulator Sebi specifies norms on subordinate units in InvITs

The Securities and Exchange Board of India (Sebi) has notified changes in Infrastructure Investment Trust (InvIT) norms to allow the issuance of subordinate units by privately placed InvITs.

These units will be issued to sponsors or associates upon acquisition of an infrastructure project. Just like mutual funds, which are pooled investments, InvITs too issue units. A sponsor refers to the entity which sets up the InvIT.

Subordinate units have inferior or no voting rights and distribution rights compared to the ordinary units issued. These subordinate units can be reclassified into ordinary units on meeting performance benchmarks and after three years of issuance.

However, Sebi has imposed a cap of 10 per cent on the issuance of subordinate units.

“The amount of subordinate units issued at the time of acquisition of an infrastructure project by the InvIT shall not exceed ten per cent of the acquisition price of the infrastructure project,” said Sebi.

The market regulator had first approved the changes in its board meeting held in March and has now notified the same, making the norms effective. The framework aims to bridge the valuation gaps due to a difference in valuation done by the sponsor (as a seller) for an asset and that by the InvIT (as a buyer).

Sebi has directed investment managers to monitor the progress related to the achievement of performance benchmarks and report the progress annually.

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