REITs and InvITS must ensure dematerialisation of securities by June 30: Sebi

The market regulator released two consultation papers on REITs and InvITS this month.

The market regulator has asked investment managers of Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs) to ensure that securities of holding companies and special-purpose vehicles (SPVs) are held in dematerialized form.

In case securities are held in physical form, the managers of the trusts have been given time till June 30, 2023 to implement the change.

InvITs and REITs hold their assets through holding companies or SPVs, and investors are issued shares of these companies or the SPVs.

Also read: Sebi proposes special rights to certain unitholders of REITs and InVITs

The Securities and Exchange Board of India (Sebi) issued two orders on May 22, one for InvITS and one for REITs, and both on dematerialization of securities.

“In order to promote dematerialization of securities, encourage ease of doing business, improve transparency in the dealings of securities of Hold Cos/SPVs,  it has been decided that InvITs shall henceforth hold the securities of  Hold  Cos and  SPVs in dematerialized form only. The Investment Manager of the InvIT shall ensure the same,” said Sebi in its order. Similar were the reasons given for the dematerialisation of REIT units.

Regulation  14(4)(r) of SEBI (Infrastructure  Investment  Trusts)  Regulations, 2014 (“InvIT  Regulations”) provides that the units of InvIT shall be issued only in dematerialized form to all the applicants, said the circular on InvITs.

Regulation 14(18) of SEBI (Real Estate Investment Trust) Regulations, 2014 (“REIT Regulations”) provides that the units of REIT shall be issued only in dematerialized form to all the applicants, stated the circular on REITs.

The market regulator released two consultation papers on REITs and InvITS this month.

Also read: Fractional-realty industry welcomes Sebi oversight, but wants a "killer" provision to go

First proposed special rights to some unitholders of REITs and InvITs and allowed self-sponsored REITs and InvITS. The former to allow all investors to avail an option already being given to selective, large investors and the latter to develop more robust asset-management capabilities and to provide an alternative exit for sponsors.

Another one proposed bringing fractional realty platforms under the REITs regulatory framework, as micro, small and medium REITs. This suggestion was welcomed by the larger players in fractional realty though they will seek to change a clause that requires sponsors to hold 15 percent in the holding company or SPV.