Sebi notifies final rules for REITs & InvITs
The Sebi Real Estate Investment Trust Regulations 2014 and Sebi Infrastructure Investment Trust (InvIT) Regulations 2014 have come into force with immediate effect. The regulator had earlier approved these norms in August.
Neeraj Sharma, partner at Walker Chandiok, said, “The REITs guidelines would ensure detailed and quality disclosures. Given the corporate environment under which real estate players operate, it’s a good attempt.”
“The mandatory disclosures (on related party transactions, REIT and under-construction assets) in the initial offer document will help prospective investors to take an informed decision. The disclosures, which are mandated as part of the annual report on an ongoing basis, will reflect the status of corporate governance of REITs apart from other things, and hence, impact their valuation/reputation going forward.”
Bhairav Dalal, associate director of Price Waterhouse Coopers India, said, “We expect this to be an extremely positive move for the Indian capital markets. It could free up some liquidity for large real estate and infrastructure players. It would provide investors an opportunity to invest in stabilised Indian assets through an listed Indian platform.”
PwC India said, “Reducing the minimum asset value to Rs 500 crore for REIT IPO will enable more sponsors to enter the REIT market.” PwC also welcomed introduction of the concept of multiple sponsors, thereby, enabling more than one sponsors to back an REIT.
Sebi said REITs can invest in special purpose vehicles, or SPVs, set up as LLPs. As per Sebi REIT Regulations for developer sponsors, a track record of completion of two projects has been prescribed. By withdrawing the single-asset REIT concept, Sebi has reduced concentration risk, PwC said.
In the REIT regulations, investment in completed and rent-generating assets has been reduced from 90 per cent to 80 per cent and additional 10 per cent allowed in other specified assets, and real estate experts said this would provide additional flexibility and diversify the risk profile.
The provision for distribution of 90 per cent of net distributable cash flows would enable REITs to service their own debt before paying out to unit holders, experts said.
With regard to infrastructure investment trust (InvIT), experts said the regulatory restrictions on sponsor transferring more than 50 per cent to InvITs may not be possible due to existing concession agreements. The final guidelines recognise this limitation and have proposed a solution that would include an agreement with the sponsor.
InvITs also provide clarity for the inclusion of under-construction projects (both PPP & non-PPP) under InvITs. Also, InvITs lay down the eligibility criteria with sponsor lock-in applicable for three years after the IPO. InvIT regulations lay down one-year lock-in for investors (other than sponsors) holding units prior to IPO.
by Ravi Ranjan Prasad for Financial Chronicle
0 comments