Sebi Proposes Major Investment Flexibility for REITs and InvITs in Liquid Funds
In a significant move to enhance investment opportunities, the Securities and Exchange Board of India (Sebi) has put forward proposals to widen the investment possibilities for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) in liquid mutual fund schemes. The announcement was made on Thursday, marking a pivotal step in regulatory reforms for these investment vehicles.
Current Limitations and Proposed Changes
Currently, REITs and InvITs are restricted to investing only in liquid funds that carry the highest credit risk rating, which significantly limits their options in the market. Sebi's new proposals aim to relax these constraints, allowing these trusts to explore a broader range of liquid mutual fund investments. This initiative is part of Sebi's broader push to make doing business easier for REITs and InvITs, fostering a more dynamic and flexible investment environment.
Sebi is examining changes to provide greater investment flexibility for REITs and InvITs while maintaining appropriate prudential safeguards, the regulator stated, as quoted by PTI. This balanced approach ensures that while investment options expand, necessary protections remain in place to safeguard investor interests and market stability.
Key Proposals for InvITs and SPVs
In the consultation document released by Sebi, several key proposals were outlined to streamline operations for InvITs. One notable suggestion is to permit InvITs to retain holdings in special purpose vehicles (SPVs) even after concession agreements have ended. The regulator highlighted that some SPVs may need to continue functioning to meet ongoing legal, contractual, tax, or litigation obligations, making this retention crucial for operational continuity.
To support this change, Sebi proposed revising the definition of SPVs with specific conditions, such as implementing a specified exit or reinvestment schedule. Additionally, improved disclosure requirements at both the InvIT and SPV levels are recommended to enhance transparency and accountability in these investments.
Harmonizing Rules for Private and Public InvITs
Sebi also recommended harmonizing the rules for private InvITs with those that apply to public InvITs, particularly concerning greenfield projects. The proposed changes will facilitate privately listed InvITs to invest into pure greenfield projects up to 10 per cent of the value of the InvIT asset. This alignment aims to create a level playing field and encourage more investment in new infrastructure developments, boosting economic growth.
Expanding Borrowing Options for InvITs
Another significant proposal involves widening the use of fresh borrowings for InvITs when net debt exceeds 49 per cent of their assets. This change is designed to provide InvITs with greater financial flexibility, enabling them to manage debt more effectively and pursue growth opportunities without undue constraints.
Stakeholder Feedback and Next Steps
Sebi has invited stakeholders to provide feedback on these proposals by February 26. This consultation period allows for input from industry participants, investors, and other relevant parties to ensure that the final regulations are well-rounded and effective. The regulator's proactive approach underscores its commitment to evolving the investment landscape in India, making it more conducive for REITs and InvITs to thrive.
Overall, these proposals represent a comprehensive effort by Sebi to modernize and liberalize the investment framework for REITs and InvITs, potentially leading to increased market participation and enhanced returns for investors in the long run.
