SEBI released a Consultation Paper for amendments to the SEBI (Infrastructure Investment Trusts) Regulations, 2014 on June 01, 2016, in light of the feedback received from various market participants regarding changes in the existing regulations. This is the second time SEBI has invited public comments on the InvIT Regulations, since their notification on September 26, 2014. The InvIT Regulations prescribes requirements for registration, investment conditions, disclosures, etc.
The significant proposals in the consultation paper are discussed here: i) Removing the current restriction on the Special Purpose Vehicle (where it is a holding company) to invest in other SPVs holding the assets, subject to certain conditions such as provisions on related party transactions. This would provide greater operational convenience, as in many cases concessionaire agreements prohibit direct change in control of the SPV holding the assets. (ii) Relaxing the requirement for the sponsor to hold minimum 25% of the total units of the InvIT on a post-issue basis for at least 3 years from the date of the listing of such units. One option is to lock-in 10% of the units for 3 years and any holding exceeding 10%, for 1 year. Such a requirement will ensure skin in the game for sponsors, while not unreasonably tying up funds, and facilitate InvITs to monetize income generating infrastructure assets. (iii) Increasing the number of sponsors from 3 to 5, in cases where the sponsor holds at least 25% of the units. Consequently, non-major infrastructure companies can pool their operational assets and put them under an InvIT. (iv) Relaxing the requirement for the fund manager to have minimum 5 years’ experience in fund management or advisory services in the infrastructure sector. The existing provision acts as a hindrance for a newly incorporated entity to act as an investment manager, despite being promoted by a fund manager having the requisite experience. Further, even if a company has been operational for a period of 3-4 years, it may have had a successful performance with more than two of its projects in the infrastructure sector having achieved financial closure.
The proposals in the consultation paper comprise a significant step forward in the creation of a more facilitative regulatory framework for registration and functioning of InvITs. Given that funding and liquidity are critical for infrastructure projects, the proposals are in the right direction as they would eventually enable InvITs to draw greater funds.