Sebi issues revised draft regulations for infra trusts

18 Jul 2014


The Securities and Exchange Board of India (Sebi) on Thursday issued revised draft regulations for the launch of infrastructure investment trusts (InvIT) for tapping infrastructure funds on a regular basis.

Infrastructure investment trusts (InvITs), which are equivalent to the real estate investment trusts (REITs), are aimed at providing a new financing stream for infra projects through issue of tax-free debt securities.

These REITS and InvITs, which would attract long-term finance from foreign and domestic sources, including NRIs, are intended to reduce the pressure on the banking system while also making available fresh equity.

''As an innovation, a modified REITS type structure for infrastructure projects is also being announced as Infrastructure Investment Trusts (InvITs), which would have a similar tax efficient pass through status, for PPP and other infrastructure projects,'' the finance minister had said in his budget speech.

SEBI's draft guideline has proposed that an InvIT can own up to Rs500 crore in an underlying infra project. It can raise capital from the public with a minimum issue size of Rs250 crore.

The market regulator has proposed that an InvIT which wants to invest 80 per cent of the assets in completed and revenue generating infrastructure assets or projects can raise funds through public issue of units.

InVITs can invest in infrastructure projects, either directly or through SPV. In case of PPP projects, such investments should only be through SPV.

An InvIT, which proposes to invest at least 80 per cent in completed projects, should raise funds only through public issue of units and minimum subscription size and trading lot for such InvIT should be Rs5 lakh. The remaining 20 per cent can be invested in under construction infrastructure projects (subject to maximum of 10 per cent) and other permissible investments.

An InvIT, which proposes to invest more than 10 per cent of the value of under-construction infrastructure projects, should necessarily raise funds through private placement from qualified institutional buyers and body corporates and the minimum investment and trading lot for such InvITs should be of Rs1 crore.

Such InvITs should mandatorily invest in not less than one completed and revenue generating project and not less than one pre-COD project.

Listing is mandatory for both publicly-offered and privately-placed InvITs.

Prior to making an offer of units, either through public issue or private placement, an InvIT should have strategic investors such as banks, multilateral financial institutions, FPIs including sovereign wealth funds, etc, which together invest not less than 5 per cent of the size of the InvIT or such amount as may be specified by the board.

An InvIT should be a trust with parties such as sponsor, investment manager, trustee and project manager.

A trustee of InvIT can either be a Debenture Trustee registered with Sebi and not an associate of the sponsor or investment manager.

Alternatively, a trustee can be an associate of the sponsor or investment manager having not less than 50 per cent of its directors as independent and not related parties to the InvIT.

However, a trustee of InvIT cannot be trustee of another InvIT or an Alternative Investment Fund engaged in infrastructure sector.

The aggregate consolidated borrowing of the InvIT and the underlying SPVs should never exceed 49 per cent of the value of InvIT assets. However, this may exclude any debt infused by the InvIT in the underlying SPV.

Any borrowing exceeding 25 per cent of the value of InvIT assets would require approval of credit rating agency and unit holders.

The market regulator had in December last year issued a discussion paper on InvITs. The latest draft regulations have been issued after considering the public feedback on the earlier paper and also the various provisions in the Income Tax Act provided in the budget.

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