SEBI proposes easing rules for InvITs, REITs; Seeks to broaden investment flexibility

SEBI proposes easing rules for InvITs, REITs; Seeks to broaden investment flexibility

• SEBI proposes amendments to InvIT and REIT regulations for operational ease
• InvITs may retain PPP SPVs post-concession until obligations are settled
• REITs and InvITs could see expanded liquid mutual fund investment options

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Capital market regulator Securities and Exchange Board of India (SEBI) has proposed a series of amendments to the Infrastructure Investment Trusts (InvIT) and Real Estate Investment Trust (REIT) regulations. The key proposals include, allowing InvITs to retain PPP SPVs after concession expiry until obligations are settled. Also, to expand eligible liquid mutual fund investments for REITs and InvITs. SEBI has also proposed to permit private InvITs, limited exposure to greenfield projects. Broaden end-use of borrowings where InvIT leverage exceeds 49 percent has also been proposed. These proposals listed in consultation paper are aimed at improving ease of doing business and addressing operational challenges faced by the sector.

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The proposal to allow InvITs to continue holding special purpose vehicles (SPVs) even after the end or termination of a concession period, recognising that such entities may continue to have statutory or contractual obligations. Under the proposal, InvITs will be required to exit such SPVs or acquire a new infrastructure project within one year of settlement of all obligations, along with enhanced disclosures on liabilities and litigation.

Currently, SPVs are required to maintain at least 90 percent of their value in infrastructure assets, a condition that cannot be met once a concession ends despite the SPV continuing to have statutory, contractual, tax or litigation-related obligations. SEBI has proposed amending the SPV definition to address this gap, subject to a one-year exit or reinvestment timeline and enhanced disclosure requirements.

SEBI has also proposed expanding the investment universe for REITs and InvITs by relaxing norms for investment in liquid mutual fund schemes under the 20 percent “other investments” bucket. SEBI has suggested lowering the minimum credit risk value requirement to 10 from 12, allowing investments in schemes classified as Class A-I or Class B-I under the Potential Risk Class matrix, in order to reduce concentration risk and improve diversification.

In another move, SEBI has proposed aligning private InvITs with publicly listed InvITs by permitting private InvITs to invest up to 10 percent of their asset value in pure greenfield projects, a flexibility currently available only to public InvITs.

Further, the regulator has suggested expanding the permitted use of borrowings for InvITs where net borrowings exceed 49 percent of asset value. Apart from asset acquisition and development, InvITs may be allowed to raise fresh debt for capital expenditure and major maintenance, as well as refinance existing borrowings, provided such refinancing does not increase overall leverage.

SEBI has invited public comments on the proposals by February 26.

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