Sebi Updates REITs and InvITs Regulations to Enhance Disclosure Standards
The Securities and Exchange Board of India (Sebi) has approved significant amendments aimed at enhancing the operational landscape for Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), and merchant bankers. These changes, which were finalized during a board meeting on Wednesday, focus on improving cash-flow management, refining public unitholding definitions, and streamlining reporting processes. Additionally, the amendments will allow merchant bankers to engage in certain non-regulated financial services under their existing legal entities, provided they adhere to specific regulatory conditions.
Enhancements for REITs and InvITs
The newly approved framework introduces several key changes for REITs and InvITs. Notably, units held by related parties, including sponsors and investment managers, will no longer be classified as part of the public, even if they qualify as Qualified Institutional Buyers (QIBs). This amendment aims to tighten disclosure requirements regarding related-party holdings. Furthermore, the revised regulations allow holding companies (HoldCos) to offset negative net distributable cash flows from their operations against cash inflows from special purpose vehicles (SPVs) before distributing the remaining funds to the REIT or InvIT. This marks a departure from the previous rule that mandated a 100% onward distribution of SPV inflows.
In an effort to simplify compliance, Sebi has aligned the timelines for various report submissions, including quarterly filings to stock exchanges and trustees, with the schedule for financial results. This change is expected to eliminate redundant delays and enhance operational efficiency. Additionally, to broaden access to privately placed InvITs, Sebi has established a uniform minimum allotment size of Rs 25 lakh in the primary market, which aligns with the trading lot in the secondary market. Previously, the minimum thresholds varied between Rs 1 crore and Rs 25 crore, depending on the asset mix.
Increased Flexibility for Merchant Bankers
In response to feedback from the industry, Sebi has revised its earlier directive that required merchant bankers to separate non-Sebi-regulated activities into distinct legal entities. Under the new guidelines, merchant bankers can continue to conduct these activities within the same entity, provided they meet specific conditions. If the activity is regulated by another financial-sector authority, compliance with that regulator’s framework is mandatory. Additionally, if the activity is not regulated by Sebi or any other financial regulator, it must be fee-based, non-fund-based, and directly related to financial services.
These changes are designed to facilitate more efficient operations for merchant bankers while maintaining regulatory oversight. The amendments aim to reduce structural overheads, allowing these financial professionals to operate more effectively in a competitive market. The adjustments to the REITs Regulations, InvITs Regulations, and Merchant Bankers Regulations are set to be notified shortly, marking a significant shift in the regulatory landscape for these sectors.
Implications of the Amendments
The recent amendments by Sebi are expected to have a profound impact on the functioning of REITs, InvITs, and merchant bankers in India. By enhancing cash-flow flexibility and refining the definitions of public unitholding, the changes aim to create a more conducive environment for investment and growth in these sectors. The alignment of reporting timelines is also anticipated to streamline operations, making it easier for stakeholders to comply with regulatory requirements.
Moreover, the decision to allow merchant bankers to conduct non-Sebi-regulated activities under the same legal entity is a significant step towards reducing operational complexities. This flexibility could lead to increased efficiency and lower costs, ultimately benefiting clients and investors alike. As these amendments take effect, the industry will be closely monitoring their implementation and the subsequent effects on market dynamics and investment opportunities.
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