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SEBI has proposed a new framework to enhance fundraising for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). The guidelines include lock-in provisions requiring 15% of units allotted to sponsors to remain locked for three years and the rest for one year. Additional measures for fast-track follow-on offers (FPOs) include mandatory in-principle stock exchange approvals, a minimum public unitholding of 25%, and stricter disclosure norms aligned with public issue standards. SEBI's continuous efforts to refine regulations reflect its commitment to fostering transparency, boosting investor confidence, and aligning with global practices.
The Securities and Exchange Board of India (SEBI) has suggested new regulations that would facilitate the fast-tracking of fundraising exercises for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). These regulations are likely to promote transparency and investor trust in these alternative investment platforms, which have gained popularity ever since their launch in India. Advertisement
REITs and InvITs entered the Indian market in 2014 via SEBI regulations, with the first REIT listed in 2019. As of now, there are three listed REITs and some InvITs that oversee assets worth billions of INR. They have gained popularity, especially in the commercial realty and infrastructure investment space. SEBI has tried ceaselessly to make these instruments better, like lowering the trading lot size in 2021 to promote retail participation.
In its new proposal, SEBI has proposed that 15% of units granted to sponsors and groups should be kept locked-in for three years from the approval of trading and the rest should be locked-in for one year. These terms serve to ascertain the commitment of sponsors and investor confidence.
In the case of follow-on offers (FPOs), SEBI made it clear that these channels enable REITs and InvITs to raise funds subsequent to their initial public offering (IPO). The regulator suggested that companies intending to make an FPO should approach all stock exchanges where their units are listed, get in-principle approval for one specified exchange, and have merchant bankers and managers get all the trading permissions.
Besides, the regulator has also required public unitholding to form not less than 25% of the total outstanding units after the issue. SEBI has also suggested capping the issuance of further units through public issues, rights issues, or preferential issues between the filing of the draft FPO document and the listing of units or refund of application monies.
To further enhance transparency, SEBI proposed that REITs and InvITs standardize their financial disclosure in offer documents with norms governing public issues. These are among the latest measures by SEBI to harmonize Indian rules with international best practices and enhance investor confidence in these vehicles.
Last week, SEBI sought public comment on the proposed guidelines, and comments are expected to influence the final framework. If adopted, these reforms have the potential to greatly improve the efficiency and credibility of REITs and InvITs as investment vehicles.
SEBI's proposed reforms aim to establish a more robust framework for REITs and InvITs, which are gradually emerging as preferred investment vehicles in India's real estate and infrastructure sectors. By incorporating lock-in provisions, streamlining FPO processes, and improving financial disclosure norms, these measures seek to ensure transparency, enhance accountability, and attract greater investor participation. As India's REIT and InvIT market evolves, these changes could align the domestic market with global benchmarks, fostering growth and trust. Public feedback will play a crucial role in shaping these policies, with their implementation likely to strengthen India's investment landscape.
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