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SEBI proposes relaxed norms for REITs, InvITs to increase access to investors

The REITs and InvITs are listed entities that mainly invest in income-producing assets, the earnings of which are mostly distributed to their shareholders. They generally get special tax treatment.

Jan 30, 2019 17:09 IST
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SEBI proposes relaxed norms for REITs, InvITs to increase access to investors

The Securities and Exchange Board of India (SEBI) on January 30, 2019 proposed a new set of relaxed norms for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) to increase access to investors.

The new set of framework will provide flexibility to the issuers in terms of fund raising and will boost investments in REITs and InvITs.

What do you mean by REITs and InvITs?

The REITs and InvITs are listed entities that mainly invest in income-producing assets, the earnings of which are mostly distributed to their shareholders. They generally get special tax treatment.

The Infrastructure Investment Trusts (InvITs) allows investors to invest in infrastructure assets. It was established with an aim to ease the liquidity crunch in the infrastructure space.

The Real Estate Investment Trusts (REITs) was introduced for making collective investments in commercial real estate.

SEBI notified the final rules for setting up of REITs Regulations 2014 and InvITs Regulations 2014 on September 26, 2014.

What led SEBI to relax the norms further?

The REITs and InvITs markets have evolved considerably in the global scenario and these investment vehicles have gained enormously in terms of their market capitalisation. However, the market for REITs and InvITs are still at a budding stage in India.

SEBI notified the REITs Regulations in 2014, allowing setting up and listing of such trusts which are very popular in some advanced markets.

However, till date, only three InvITs have issued and listed their units, raising about Rs 10000 crore. On the other hand, only one REIT is in the process of making a public offer. Despite various relaxations given by SEBI earlier, these investment vehicles have failed to attract investors.

Considering this, the market regulator came out with few more relaxations to amend the Regulations. These relaxations are open for public response till February 18, 2019. The final norms will be put in place after taking views of all the stakeholders.

Proposed norms for REITs, InvITs

As per the new norms, minimum allotment and trading lot for publicly issued REITs and InvITs will be reduced.

The leverage limit for InvITs will be increased from existing 49 percent to 70 percent. The enhanced limit will be available specifically for acquisition of new infrastructure assets.

At the time of issue, the minimum application and allotment lot shall be of 100 units and the value of one such lot will range from Rs 15,000 to Rs 20,000. After initial listing, a trading lot shall also be of 100 units.

InvITs which are increasing their leverage beyond 49 percent will have to make additional disclosures about financial results on quarterly basis.

Sebi proposed a separate framework to enable unlisted privately placed InvITs. The number of investors in such InvITs shall be as determined by the issuer including the extent of investment by a single investor.

Other proposals are the minimum investment by an investor should not be less than Rs 1 crore; leverage should be determined by the issuer after consultation with investor and listing of units of such InvITs on recognised stock exchanges should not be permitted.

The trading lot for existing publicly issued and listed units should be reduced by the stock exchange within a period of six months from the date of notification of the regulations.

Procedure for InvITs

Existing privately placed listed InvITs may migrate to the proposed framework for private unlisted InvITs, if they obtain the approval of more than 90 percent of their unit holders by value. Consequently, the units of such privately placed InvITs will get delisted from stock exchanges.

On the other hand, a privately placed unlisted InvIT, may choose to list its units on stock exchanges, after complying with the requirements as applicable for a privately placed and listed InvIT.

Present scenario of investment in REITs, InvITs

  • Currently, in the case of a REIT issue, the minimum subscription from any investor in an initial offer and follow-on public offer is not less than Rs 2 lakh, while the same is Rs 10 lakh in case of InvIT.
  • The prescribed trading lot for the purpose of trading of units of the REIT on the stock exchange is Rs 1 lakh, while the same is Rs 5 lakh for InvIT.