SEBI Proposes Fast-Track Follow-On Offers for REITs & InvITs

Sub: Eco

Sec: Capital Market

Why in the News?

The Securities and Exchange Board of India (SEBI) has proposed a framework to enable fast-track follow-on offers (FPOs) by Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).
The move aims to make fundraising more efficient for these investment vehicles.

Proposals by SEBI:

Lock-in Period for Preferential Issue of Units:

15% of units allotted to sponsors & sponsor groups will be locked-in for 3 years from the date of trading approval.
Remaining units will be locked-in for 1 year from the date of trading approval.

Key Concepts

Initial Public Offering (IPO) & Follow-on Public Offering (FPO) –

Initial Public Offering (IPO)

Definition: The first-time issuance of shares by a private company to the public, enabling it to get listed on a stock exchange.
Purpose: To raise capital for expansion, debt repayment, or other corporate needs.
Risk: Higher, as investors lack prior market performance data for the company.

Follow-on Public Offering (FPO)

Definition: Issuance of additional shares by an already-listed company to raise extra capital.
Purpose: To fund growth, acquisitions, or debt repayment without taking loans.
Risk: Lower than IPO, as the company already has a trading history and established market value.

What is an Infrastructure Investment Trust (InvIT)?

Structure: Similar to mutual funds, but for infrastructure projects.
Purpose: Enables individual & institutional investors to invest in infrastructure and earn a share of the income.

What is a Real Estate Investment Trust (REIT)?

Purpose: Invests in income-generating real estate (commercial, office spaces, etc.).
Structure: Similar to mutual funds, providing liquidity to real estate investments.
Benefits:
- Regular income (from rents).
- Portfolio diversification.
- Long-term capital appreciation.