Capital markets regulator Sebi’s decision to permit Real Estate Investment Trust (REIT) and Infrastructure Investment Trust (InvIT) to issue commercial papers will allow REITs and InVITS to raise short – term debts and bridge their capital requirements and may also add to the attraction for other commercial portfolio owners to list for REITs, experts said.
The capital markets regulator said that REITs and InvITs may issue listed commercial papers. This is subject to certain conditions, including REITs and InvITs need to abide by the guidelines prescribed by the Reserve Bank of India (RBI) for issuances of commercial papers and follow the conditions of listing norms prescribed by Sebi.
The move came after Reserve Bank Commercial Paper Directions last month indicated that InvIT and REIT having net worth of at least Rs 100 crore are eligible to issue commercial paper. Commercial Paper refers to a short-term debt instrument issued by companies to raise funds generally for a time period up to one year.
“SEBI’s decision to allow issuing commercial paper as per RBI guidelines will allow REITs and InVITS to raise short – term debts and bridge their capital requirements. The decision is demonstrative of the government’s acknowledgement and encouragement of this investment asset class and will help the listed REITs and InVITs perform better in the future. This may also add to the attraction for other commercial portfolio owners to list for REITs. Currently, there are three listed REITs – in commercial assets, which have been performing well,” said Shishir Baijal, Chairman and Managing Director, Knight Frank India.
SEBI’s move to allow REITs to issue commercial papers, provides an additional avenue of financing through short-term debt instrument at comparatively lower costs and shorter timelines. This aids in bringing down the cost of capital for AAA-rated REITs. REITs, which are a relatively new investment vehicle in the Indian markets, have seen positive response from both unit holders and potential investors, and this fortifies confidence in the instrument and bodes well for REIT story that is currently unfolding in India, said Vinod Rohira, CEO, Mindspace Business Parks REIT.
“As India's first REIT, we welcome SEBI's announcement authorising Indian REITs to issue commercial paper. Global REITs have long used commercial paper as a short-term financing option. The introduction of commercial paper in India further validates the creditworthiness of REITs as they continue to transform commercial real estate sector in the country. Additionally, this initiative will further reduce the cost of capital for this asset class, and will also deepen the available capital pools which already include banks, FPIs and insurers,” said Vikaash Khdloya, CEO, Embassy REIT.
This move will open up a new short-term source of finance for REITs to raise funds at competitive rates and flexibility in structuring. "The rent-yielding assets held by REITs provided access to long-term sources of funds like quasi-institutional placement, term loans, and lease rental discounting which were also used for meeting short-term requirements. Access to the CPs market will lead to an additional pool of capital and enhanced liquidity for REITS leading to efficient use of capital and better cash flow management," said Adishesh Mitra, Senior Director- Capital Markets, India, JLL.
REIT comprises a portfolio of commercial real assets, a major portion of which is already leased out, and InvITs comprise a portfolio of infrastructure assets such as highways, and power transmission assets. At present, there are three listed REITs - Embassy Office Parks REIT, Mindspace Business Parks REIT and Brookfield India Real Estate Trust - on Indian stock exchanges but all these are of leased office assets.
REITs are investment vehicles that own, operate and manage a portfolio of income-generating properties for regular returns. They operate like mutual funds or shares. REITs will have to be mandatorily listed on exchanges and traded like securities. Small investors can buy units of REITs from both primary and secondary markets just as they buy shares or mutual funds.
Anshuman Magazine, Chairman and CEO, India, South-East Asia, Middle East & Africa, CBRE told Moneycontrol on September 14 that REITs are expected to get listed on the stock exchanges to monetise not only rent-yielding office but also retail and warehousing assets.REITS would get listed on the stock exchanges to monetise rent-yielding office, retail and warehousing assets going forward, Magazine said, adding this is expected either this year-end or early next year.