Sebi has suggested modifications to the laws regulating REITs and InvITs, requiring sponsors to possess a specified percentage of the units in these investment vehicles.
TopicsSEBI | REITs
Sebi has suggested modifications to the laws regulating REITs and InvITs, requiring sponsors to possess a specified percentage of the units in these investment vehicles.
The markets regulator stated in a consultation paper on the subject that the changes are being proposed with the interest of unit holders and the structural vulnerabilities associated with the absence of a sponsor for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (IITs) in mind (InvITs).
While there is no statutory unit holding requirement beyond three years, the watchdog suggests that the sponsors of REITs/InvITs keep 15% of the capital for three years from the date of listing.
Sponsors will be obliged to possess a specific percentage of units in REITs and InvITs under new regulations suggested by Sebi for these investment vehicles.
The markets regulator said in a consultation paper on the subject that the proposed changes are being made with the interest of unit holders and the structural vulnerabilities associated with the lack of a sponsor for infrastructure investment trusts (IITs) and real estate investment trusts (REITs) in mind (InvITs).
Moreover, it has been suggested that sponsors be required to hold 5% of the unit capital after three to five years, 3% after ten years, 2% after twenty years, and 1% after twenty.
“… it is felt that there is a need for at least one sponsor throughout the life of the REIT/InvIT, and the sponsor needs to hold a certain percentage of units on a perpetual basis in order to ensure that there is some alignment of interest with the unitholder,” Sebi said in the February 23 consultation paper.
Because the REIT/InvIT business is still in its early stages and is constantly developing, it is necessary for investment managers to have at least one sponsor during their tenure.
Sebi stated that the majority of the sponsors have significant holdings in the managers of REITs/InvITs, which provides them the power to choose directors and a role in the investment managers’ financing decisions, particularly debt financing.
According to the regulation, a sponsor of a REIT/InvIT whose units have been listed on stock markets for three years may declassify as the sponsor subject to specific requirements, including the presence of a new inducted sponsor in place of the declassified existing sponsor.
There are now 5 REITs and 19 InvITs registered with Sebi. Three REITs and fifteen InvITs have raised capital through an initial and/or subsequent offer.
Stakeholders have until March 8 to offer comments on the consultation paper.
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