SEBI for InvIT, REIT sponsors to have skin in game

February 24, 2023

SEBI has proposed changes to rules governing REITs and InvITs whereby sponsors will be required to own a certain percentage of units in these investment vehicles.

Coming out with a consultation paper on the subject, the markets regulator said the changes are being proposed keeping in mind the interest of unit holders and the structural vulnerabilities associated with absence of a sponsor for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).

The watchdog has suggested that the sponsors of REITs/InvITs should hold 15 per cent of the capital for a period of three years from the date of listing as there is no mandatory unit holding requirement after three years.

It has also been proposed to mandate sponsors to hold 5 per cent of the unit capital after 3-5 years, 3 per cent from 5-10 years, 2 per cent from 10-20 years and 1 per cent after 20 years.

“… it is felt that there is a need to have at least one sponsor throughout the life of the REIT/ InvIT and the sponsor needs to hold 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 consultation paper dated February 23.

As the REIT/InvIT industry is in a nascent stage and continuously evolving, there is a need to have at least one sponsor throughout the life of the investment managers, it added.

SEBI noted that most of the sponsors have significant shareholding in managers of REITs/InvITs which gives them the right to appoint directors and also has a say in the financing related decisions of the investment managers especially in debt financing.

According to the regulator, a sponsor of a REIT/InvIT whose units have been listed on the stock exchanges for a period of three years can be permitted to declassify as the sponsor subject to certain conditions, including that there has to be a new inducted sponsor in place of existing sponsor getting declassified.

At present, there are 5 REITs and 19 InvITs registered with Sebi. Out of them, 3 REITs and 15 InvITs have raised funds through initial offer and/or further offer.

Stakeholders can submit their comments on the consultation paper till March 8.

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