The Securities and Exchange Board of Inda (Sebi) is considering self-sponsored Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvIT), to develop more robust asset-management capabilities and to provide an alternative exit for sponsors.
These trusts have sponsors that initiate and set them up, managers/investment managers who control the assets and investments, and trustees who ensure that the interests of all unitholders are taken care of.
“Introduction of a framework for self-sponsored REIT/InvIT will, besides creating space for mature and independent professionally managed Managers/Investment Managers to emerge, provide a further exit option for the Sponsor in addition to the exit option through change of sponsor presently envisaged in the REIT Regulations & InvIT Regulations,” stated the consultation paper released by the Sebi on May 16.
Also read: Sebi proposes special rights to certain unitholders
If this proposal is accepted, then the norms that allow declassification of sponsors (Regulation 7A of REIT Regulations and InvIT Regulations) will stop being relevant. In 2020, the market regulator had allowed this declassification subject to certain conditions. If the new proposal is accepted, the only way for sponsors to exit a REIT or an InvIT would be through the induction of a new sponsor or through the transformation of the REIT/InvIT into a self-sponsored one.
The manager/investment manager of the REIT/InvIT would need to meet certain sponsor-eligibility criteria before getting the go-ahead from Sebi, according to the proposal.
They are that the REIT/InvIT should have been listed for atleast five years; should have made at least twelve distributions (of income from property to unitholders) on a continuous basis; be rated AAA by a Sebi-registered Credit Rating Agency for a continuous period of five years; in the preceding five years, the trust should not have exceeded the prescribed leverage thresholds; have a manager that meets the net worth criteria prescribed for the Sponsor; have the manager comply with the) The mandatory unitholding requirement applicable for Sponsor; not have the sponsor or its associates own or control the investment manager of the REIT/InvIT; and should not have any under-construction projects or projects that have not commenced commercial operations that are acquired from the Sponsor, among other criteria.
Consent has to be taken from the trustee and unitholders for the disassociation by the sponsor. “Unitholders approval from seventy-five percent of the unit holders by value excluding the value of units held by parties related to the transaction shall be obtained and due exit option should be provided to the dissenting unitholders in case the required approval is not received,” stated the consultation paper.
If the manager/investment manager is unable to meet the mandatory unitholding requirement to qualify for a self-sponsored REIT/ InvIT, the shareholders of the manager/investment manager could contribute their own units of REIT/ InvIT to meet the minimum unitholding requirement.
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