SEBI amends regulations for REIT and InvIT

SEBI amends regulations for REIT and InvIT

Subject : Economy

Section: Capital market

Key Points:

• SEBI has brought some changes in regulations of Real estate investment trusts (REITs) and Infrastructure Investment Trusts (InvIT) regarding the lock-in period of sponsors (Sponsor is the party who sets up the REIT/InvIT).
• SEBI has amended the minimum unitholding requirement for sponsors. As per the approved changes, sponsors of REITs and InvITs would be required to hold a certain minimum stake in the investment vehicles on a reducing scale for perpetuity. These units will be locked-in and will also be unencumbered (not have any debt against them).
• Motivation for the changes:
  • The intention is to ensure skin in the game and that the sponsor’s interests are aligned with that of the unitholders.
  • The rider of the lock-in units being unencumbered means that the sponsors cannot use the units for leverage. This will ensure that sponsors are not able to indirectly transfer the ownership by pledging these in any way.
• Currently, there is a 15 % unit holding lock-in for at least three years. Under the amended regulations, it starts at 15 % for up to three years, then reduces over time with the lower of 1 % of unit capital or ₹1,000 crore after 20 years.
• Implications:
  • The changes will increase retail investor confidence knowing that the sponsor is there to stay.
  • Sponsors will likely find it difficult to undertake mergers and acquisitions or get new sponsors on board owing to the lock-in restrictions .