In the board meeting on September 18, 2017, SEBI has approved the following revisions to the Real Estate Investment Trust Regulations (REIT Regulations) and Infrastructure Investment Trust Regulations (InvIT Regulations):
Allowed to raise debt capital: The REIT and InvIT Regulations provide that the aggregate consolidated borrowings and deferred payments shall not exceed 49% of the value of the assets. However, it is not clear whether a REIT/InvIT can raise debt capital. To assist in the capital generation, SEBI has now decided to allow them to raise debt capital by issuing debt securities, by amending the SEBI (Issue and Listing of Debt Securities) Regulations 2008 to specifically allow a trust to issue debt securities. Having a fixed return, unlike an indicative return in equity investment, might lead to easier capital generation. This move will also favour developers not willing to dilute their ownership.
Single asset REITs: To ensure diversification and risk mitigation, REIT is required to hold at least two projects. However, such a requirement may not lead to any meaningful diversification. This peculiar provision is absent in the InvIT regulations. It has now been decided to allow single asset REITs, which will open this avenue for large single project developers.
Lending to Holdco/SPVs: Similar to InvITs, REITs have now been allowed to lend to Holding Company (Holdco)/Special Purpose Vehicles (SPVs).
Strategic investors in REITs: Under the InvIT Regulations, ‘strategic investors’ are defined as infrastructure finance companies, Scheduled Commercial Banks, international multilateral financial institutions, systemically important NBFCs, and FPIs, who together invest at least five percent of the total offer size. Strategic investors can participate as anchor investors, with a lock-in period of one year, and their bidding has to be disclosed in the offer documents. This concept of strategic investors has now been extended to REITs.
Definition of ‘valuer’ amended: The definition of ‘valuer’ in the regulations is proposed to be amended to harmonize it with the Indian Banks Association’s guidelines for empanelment of valuers by banks and Companies (Registered Valuers and Valuation) Rules, 2017.
Even after almost three years of being in force, REITs have failed to take off and only two InvITs have been listed. It is hoped that these amendments will facilitate their growth and attract investors.