SEBI issued draft guidelines for infrastructure investment trusts

The Securities and Exchange Board of India (SEBI) on 17 July 2014 announced draft regulations for infrastructure investment trusts.

Jul 21, 2014 18:23 IST
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The Securities and Exchange Board of India (SEBI) on 17 July 2014 announced draft regulations for infrastructure investment trusts.  The trust will allow companies to monetize their infrastructure projects.

The infrastructure investment trusts aims to provide easier financing options to developers of public works.

Draft Regulations issued by SEBI

  • Infrastructure trusts can raise money either through a public issue or a private placement, with a minimum issue size of 250 crore rupees.
  • If an investment trust proposed to invest at least 80 percent of its assets in completed and revenue generating infrastructure assets, it has to raise funds through a public issue of units. These sales will need to have a minimum subscription size and trading lot of at least 5 lakh rupees.
  • Of the remaining 20%, such trusts can invest a maximum of 10% in under-construction infrastructure projects.
  • If such a trust proposes to invest more than 10% of its assets in under-construction public works, it has to mandatorily raise funds through private placement from qualified institutional buyers (typically banks and other financial institutions) and corporate bodies only.
  • For such trusts, the minimum investment and trading lot will be of 1 crore rupees and a part of the assets under such trusts will have to be mandatorily invested in at least one completed and revenue generating project and in at least one pre-COD (commercial operation date) project.
  • Listing would be mandatory for both publicly offered and privately placed infrastructure investment trusts.
  • Both categories of investments trusts may also sell a minimum 5 percent stake to strategic investors who would typically be banks or multilateral finance institutions.
  • The aggregate consolidated borrowing of such investment trusts and their underlying SPVs should never exceed 49 percent of the value of the trust’s assets. However, this may exclude any debt infused by the trust in the underlying SPV.
  • For any borrowing exceeding 25 percent of the value of assets, the trust will be required to secure approval from unit holders and a credit rating from a SEBI-registered credit rating agency.

Main Functions of trusts

Such trusts will be able to invest in infrastructure projects only directly or through special purpose vehicles (SPVs). A special purpose vehicle is a company created for a specific purpose.

For public-private partnership (PPP) projects, investments can be routed only be through an SPV.

A PPP is one that usually involves a private entity building public infrastructure that is owned by the government, but from which it earned revenue over the duration of its agreement with the government.

Objective of Trust

The trust will attract long term finance from foreign and domestic sources including the NRIs (non-resident Indians).

These structures would reduce the pressure on the banking system while also make available fresh equity.

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