Sebi Proposes Major Reforms for REITs and InvITs to Boost Investment Flexibility
In a significant move to enhance the operational landscape for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), the Securities and Exchange Board of India (Sebi) unveiled a series of proposals on Thursday. The primary focus is on broadening the investment avenues for these trusts in liquid mutual fund schemes, a step aimed at fostering greater flexibility and efficiency in their financial management.
Expanding Investment Horizons in Liquid Funds
Currently, REITs and InvITs are restricted to investing only in liquid mutual funds that carry the highest credit risk rating. This limitation has often constrained their ability to diversify portfolios and optimize returns. Sebi's new proposals seek to dismantle these barriers by allowing these trusts to explore a wider array of liquid fund options. This change is part of a broader initiative by the regulator to simplify business processes and reduce regulatory hurdles for REITs and InvITs, thereby making India's investment environment more attractive and competitive.
Sebi emphasized in a statement, as reported by PTI, "Sebi is examining changes to provide greater investment flexibility for REITs and InvITs while maintaining appropriate prudential safeguards." This balanced approach ensures that while trusts gain more freedom, investor protection remains a top priority through stringent oversight mechanisms.
Key Proposals for InvITs and SPVs
Beyond liquid funds, Sebi's consultation document includes several other critical recommendations. One notable proposal is to permit InvITs to retain holdings in Special Purpose Vehicles (SPVs) even after concession agreements have concluded. The regulator highlighted that certain SPVs might need to continue operations to fulfill ongoing legal, contractual, tax, or litigation obligations. To support this, Sebi suggested revising the definition of SPVs with specific conditions, such as establishing a clear exit or reinvestment schedule and enhancing disclosure requirements at both the InvIT and SPV levels. These measures aim to ensure transparency and accountability in post-agreement scenarios.
Harmonizing Rules for Private and Public InvITs
In another forward-looking proposal, Sebi recommended harmonizing the regulations for private InvITs with those applicable to public InvITs, particularly concerning greenfield projects. This alignment would enable privately listed InvITs to invest up to 10 percent of their asset value into pure greenfield projects. Such a move is expected to stimulate infrastructure development by providing private trusts with the flexibility to engage in early-stage projects, thereby contributing to economic growth and job creation.
Enhancing Borrowing Capabilities for InvITs
Additionally, Sebi proposed expanding the permissible uses of fresh borrowings for InvITs in situations where net debt exceeds 49 percent of their assets. This adjustment is designed to offer InvITs more leeway in managing their financial structures, allowing them to undertake new investments or refinance existing debts without undue constraints. By easing borrowing norms, Sebi aims to empower InvITs to capitalize on growth opportunities while maintaining a stable financial footing.
Stakeholder Feedback and Next Steps
Sebi has invited stakeholders, including industry participants, investors, and financial experts, to provide feedback on these proposals by February 26. This consultative approach underscores the regulator's commitment to inclusive policymaking, ensuring that the final regulations are well-rounded and reflective of market needs. The proposed changes, if implemented, could mark a transformative phase for REITs and InvITs in India, enhancing their role in the real estate and infrastructure sectors.
Overall, Sebi's initiatives signal a proactive effort to modernize India's investment framework, aligning it with global best practices while addressing domestic challenges. By fostering a more flexible and robust environment for REITs and InvITs, these reforms are poised to drive greater investor confidence and economic resilience in the years ahead.
