The Securities and Exchange Board of India (Sebi) is contemplating the introduction of self-sponsored Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) to bolster asset-management capabilities and offer alternative exit opportunities for sponsors.
A consultation paper released by Sebi on May 16 highlighted the potential benefits of establishing a framework for self-sponsored REITs and InvITs, enabling the emergence of independent professional managers, and providing additional options for sponsor exits.
If approved, this proposal would render the existing norms governing sponsor declassification (Regulation 7A of REIT and InvIT Regulations) irrelevant. Sebi had previously permitted sponsor declassification under specific conditions in 2020. However, if the new proposal is accepted, sponsors would only be able to exit a REIT or InvIT by introducing a new sponsor or transforming the entity into a self-sponsored one.
The proposed manager/investment manager of the REIT/InvIT must meet certain eligibility criteria, subject to Sebi’s approval. These include a minimum of five years of listing, consistent distribution of income to unitholders for at least twelve periods, an AAA rating from a Sebi-registered Credit Rating Agency for five consecutive years, compliance with leverage thresholds, adherence to net worth criteria for sponsors, mandatory unitholding requirements, independence from the sponsor or its associates as the investment manager, absence of under-construction projects or non-operational projects acquired from the sponsor, and other stipulations.
The disassociation of the sponsor requires consent from the trustee and unitholders. The consultation paper states that approval from seventy-five percent of unit holders by value (excluding units held by related parties) must be obtained, and dissenting unitholders should be provided with an exit option if the required approval is not received.
In cases where the manager/investment manager fails to meet the mandatory unitholding requirement for a self-sponsored REIT/InvIT, shareholders of the manager/investment manager may contribute their own units of the REIT/InvIT to fulfill the minimum unitholding requirement.
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