Sebi proposes changes to the rules for REITs, InvITs

Sebi has proposed changes to the rules for REITs and InvITs, requiring sponsors to own a certain percentage of shares in these investment vehicles.

In a consultation paper on the matter, the market regulator said the changes are being proposed, taking into account the interests of shareholders and the structural vulnerabilities related to the lack of a sponsor for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (Invitations).

The watchdog has suggested that the sponsors of REITs/InvITs should hold 15 percent of the capital for a period of three years from the date of listing, as there is no obligation to hold shares after three years.

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It also proposed requiring sponsors to hold 5 percent of equity after 3-5 years, 3 percent after 5-10 years, 2 percent after 10-20 years, and 1 percent after 20 years.

“…there is a need to have at least one sponsor throughout the life of the REIT/InvIT, and the sponsor must hold a certain percentage of the units on a permanent basis to ensure there is some level of alignment with the interests of the shareholders,” Sebi said in the February 23 consultation paper.

Because the REIT/InvIT industry is still in its infancy and continues to evolve, it is necessary to have at least one sponsor throughout the life of the investment manager, she added.

Sebi pointed out that most sponsors have a significant stake in managers of REITs/InvITs, giving them the right to appoint directors and also a say in investment managers’ funding-related decisions, particularly leverage.

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According to the regulator, a sponsor of a REIT/InvIT whose shares have been listed for a three-year period may be allowed to declassify as a sponsor instead of declassifying existing sponsors, subject to certain conditions, including the need to add a new sponsor .

5 REITs and 19 InvITs are currently registered with Sebi. Of these, 3 REITs and 15 InvITs raised funds through initial offerings and/or follow-up offerings.

Stakeholders have until March 8 to submit their comments on the consultation paper.

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(This article was not edited by News18 staff and is published by a syndicated news outlet feed.)