SEBI Brings Reforms for Improving Disclosures, Enhancing Ease, for REITs and InvITs

New Delhi, June 19: The Securities and Exchange Board of India (SEBI) has announced amendments and a set of comprehensive reforms impacting Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), and merchant banking activities. The primary objective of introducing these reforms is to enhance the regulatory ecosystem and improve the ease of doing business.

Major Changes for REITs and InvITs

The SEBI board has approved several amendments to the REIT and InvIT Regulations, 2014, aimed at streamlining classifications, cash flow distributions, reporting standards, and investor participation norms.

Refined Definition of ‘Public’ For Unit Classification

A key reform clarifies the classification of related parties of sponsors, investment managers, and project managers. Under the amended framework:

• Related parties will not be considered part of the “public” category unless they are Qualified Institutional Buyers (QIBs).
• Even if they qualify as QIBs, these related parties will always be excluded from the definition of the “public” unit holding for regulatory purposes.

This change reverses a prior restriction, allowing QIB-related parties of key entities in the trust structure to be classified as public holders under certain conditions.

New Cash Flow Adjustment Mechanism For Holding Companies (HoldCos)

Another critical approval permits holding companies (HoldCos) to adjust negative net distributable cash flows against cash inflows from their Special Purpose Vehicles (SPVs).

• This provides HoldCos with greater financial flexibility to distribute a net amount to the REIT/InvIT, moving away from the previous mandate of distributing 100% of SPV cash flows irrespective of the HoldCo’s own financial status.
• Mandatory disclosures to unitholders are required for any such adjustments.

Harmonised Reporting Timelines

EBI has aligned the submission deadlines for quarterly reports and valuation reports with those for financial results. These include:

• Quarterly reports to stock exchanges
• Reports to trustees
• Reports to investment managers’ boards

This move addresses operational inefficiencies due to previously varying submission deadlines.

Reduced Minimum Investment For Privately Placed InvITs

SEBI has also approved reducing the minimum allotment size in the primary market for privately placed InvITs from up to Rs 25 crore (depending on the asset mix) to Rs 25 lakh across the board. This now aligns with the earlier reduction of the secondary market trading lot to Rs 25 lakh, providing uniformity and improved market accessibility.

Merchant Bankers Granted Flexibility in Business Operations

SEBI has relaxed previous rules that required merchant bankers (MBs) to separate activities not regulated by SEBI into distinct legal entities.

Approved Amendments Under MB Regulations

Merchant bankers may now:

• Undertake activities that fall under the jurisdiction of other Financial Sector Regulators (FSRs), provided they comply with the respective FSRs’ frameworks.
• Carry out fee-based, non-fund-based financial services that SEBI or any other FSR does not govern.

This relaxation aims to acknowledge the evolving business landscape, offering greater operational flexibility while ensuring clear regulatory oversight and compliance.

The Strategic Need For The Reforms

These amendments collectively reflect SEBI’s proactive regulatory stance, designed to simplify compliance requirements, expand market participation, and adapt regulations to meet the contemporary needs of the industry. The reforms are anticipated to boost operational flexibility for REITs, InvITs, and merchant bankers, thereby strengthening India’s overall investment ecosystem and promoting ease of doing business.

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