Sebi Proposes Guidelines on REITs and InvITs Issuing Subordinate Units

Sebi unveiled additional proposals aiming to regulate the issuance of subordinate units by Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). The proposals encompass limitations on the number of subordinate units, uniformity in granted rights, and specific conditions for issuance.

NEW DELHI: In a consultation paper released on Wednesday, Sebi outlined recommendations addressing changes in terms and conditions post-issuance of subordinate units by REITs or InvITs. The paper also presented suggestions for the proposed framework concerning the issuance of subordinate units by these entities.

Last December, Sebi had invited public comments on the subordinate unit issuance framework, focusing on sponsor entities, associates, and sponsor groups. The primary objective of subordinate unit issuance is to address valuation gaps resulting from differences in asset perception between sponsors and REITs/InvITs.

The additional proposals seek to impose a ceiling on the number of subordinate units issued during the acquisition of an asset, limiting it to 10% of the asset’s acquisition price. Furthermore, Sebi suggests that the total outstanding subordinate units should not exceed 10% of the total outstanding ordinary units at any given time.

To ensure clarity, Sebi proposed that subordinate units should have either inferior voting rights, inferior distribution rights, or a combination of both. The regulator outlined three possible scenarios for the rights associated with subordinate units, including no distribution or voting rights, limited rights up to 10%, or a combination within a specified range.

Sebi emphasizes the need for uniformity in the nature of rights conferred by subordinate units, proposing that inferior rights on all subordinate units issued by a REIT/InvIT should be similar without multiple classes.

The proposed guidelines also discourage alterations to the terms and conditions of subordinate units after issuance, aiming to maintain the certainty of sale transactions and prevent disruptions.

Public comments on these proposals are invited until January 31, marking a step toward enhancing the regulatory framework for REITs and InvITs in the Indian financial market.

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