Sebi unveils key reforms to boost ease of doing business for REITs and InvITs

The Sebi board, in its 210th meeting held in Mumbai today, announced measures to enhance ease of doing business for the activities of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). Sebi proposed to amend SEBI (Real Estate Investment Trusts) Regulations, 2014 and SEBI (Infrastructure Investment Trusts) Regulations, 2014. The regulator says the proposals are based on the recommendations of the Hybrid Securities Advisory Committee of SEBI and public feedback.

1. QIBs among related parties count towards 'public' holdings: The related parties of the REIT/InvIT and the related parties of the Sponsor, Investment Manager/Manager and project manager will not be considered as “public” unless they are Qualified Institutional Buyers (QIBs). The sponsor, sponsor group, investment manager/manager and project manager will always be excluded from “public” irrespective of being QIBs or not. Before this amendment, any units held by the related parties of the sponsor, investment manager/manager and project manager were not counted towards units held by “public”. The amendment aims to facilitate classification of units held by the related parties of the sponsor, investment manager or manager and project manager who are QIBs as public.

2. Holdco's negative cash flows can now offset SPV distributions to REIT/InvIT: The negative net distributable cash flows generated by a Holdco on its own can be adjusted against the cash received from SPV (special purpose vehicle) to arrive at the cash flows for distribution by such Holdco to the REIT/InvIT, subject to appropriate disclosures to the unitholders. Prior to this amendment, a HoldCo was required to distribute 100% of the cash flows received from the underlying SPV(s) to the REIT/InvIT. The above amendment aims to facilitate HoldCo to adjust its negative cash flows against the cash flows received from the underlying SPVs before distributing such cash flows to REIT/InvIT.

3. Alignment of REIT/InvIT reporting timelines with financial results: Sebi proposes the alignment of timelines for submission of various reports (including quarterly reports, to be submitted to stock exchanges, the trustee and the board of investment manager, and valuation reports) with the timelines for submission of financial results. Before this amendment, different timelines were prescribed for submissions of the aforementioned reports. Quarterly reports included disclosures of certain financial information of the REIT/InvIT. Certain statements forming part of the financial results are derived from valuation reports. In view of the above, it was represented that the timelines for submission of the above reports may be aligned with the timelines for submission of financial results, which has been facilitated by this amendment.

4. Minimum allotment reduced for privately placed InvITs to ₹25 lakh: Sebi proposes the reduction of the minimum allotment lot in the primary market for privately placed InvITs to ₹25 lakh in alignment with the trading lot size in the secondary market. Before this amendment, the minimum allotment lot in the primary market for privately placed InvIT was ₹1 crore or ₹25 crore, depending upon the asset mix of the InvIT. In an earlier round of reforms, the lot size for trading in the units of a privately placed InvIT in the secondary had been lowered to ₹25 lakh, irrespective of the asset mix. Hence, a uniform minimum allotment of ₹25 lakh in the primary market for all privately placed InvITs, in alignment with the secondary market trading lot, has been undertaken.

5. Category I & II AIFs can now offer co-investment opportunities

Besides, Category I & II AIFs can now offer co-investment opportunities within the AIF framework itself (bypassing the PMS route). This will ease compliance, streamline cap tables, and facilitate capital formation in startups and unlisted entities.

Kush Gupta, Director at SKG Investment & Advisory, says Sebi's board meeting today marked an important step for asset management companies as the regulator decided to provide flexibility to AIFs. "The AIF industry has grown to $155 billion, making it a significant stakeholder in capital markets. Recognising this, Sebi has taken a bold step to facilitate co-investment opportunities where the AIF structure can issue a seperate class of units to co-investors. This will attract more investments in this asset class and provide opportunities to the sophisticated investor to participate with more conviction."