SEBI allows debt capital raise by REITs, InvITs

By Ankit Doshi

  • 18 Sep 2017
SEBI allows debt capital raise by REITs, InvITs
Credit: Reuters

Capital markets regulator Securities and Exchange Board of India (SEBI) on Monday further relaxed regulations to boost investor participation in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).

Measures include allowing REITs to raise funds by way of debt instruments, besides allowing wider categories of investors to participate in such instruments and having a single asset under a trust, similar to an InvIT, the regulator notified in a press statement following a board meeting.

Under existing norms, a REIT was required to have at least two projects under it.


The regulator has allowed strategic investors like registered non-banking financial companies, scheduled commercial banks and international multilateral financial institutions to participate in the public issues of REITs. Such investors are already allowed in InvITs.

Following SEBI's go-ahead in 2014, only two InvITs have managed to list on the stock exchanges but their performance has been lacklustre. This also deterred other InvITs from floating their IPOs. Not a single REIT has listed on the exchanges thus far.

VCCircle reported last month that billionaire Gautam Adani-controlled Adani Group had called off plans to float an InvIT for the power transmission arm anticipating few takers.


In early May, road developer IRB Infrastructure Developers Ltd became the first Indian company to tap the markets with an InvIT. Several large foreign institutions, including Singapore’s sovereign wealth fund GIC, Australia’s Platinum Asset Management and the UK’s National Westminster Bank, lined up for anchor allocation. The IPO, too, saw good demand.

The IRB InvIT Fund, however, made a muted stock market debut with its units listing at a slight premium to the fund’s initial offer price. That also rubbed off on Sterlite Power Grid Ventures’ IndiGrid InvIT, whose public offer coincided with IRB InvIT’s listing. Sterlite Power's InvIT fared even worse, with the IPO struggling to find investors;

Amendment to REIT regulations


The SEBI board has decided to have further consultations with stakeholders on a proposal to allow REITs to invest at least 50% stake in the underlying holding company. Similarly, it has allowed a holding company with at least 50% stake to invest in the underlying special purpose vehicle.

The regulator has also decided to amend the definition of ‘valuer’ for both REITs and InvITs. It had notified the REITs and InvITs Regulations in 2014, allowing setting up and listing of such trusts which are popular in more advanced markets.

In order to be eligible, a valuer is required to have at least five years’ track record of valuing infrastructure assets. However, SEBI statement did not clearly highlight the proposed changes of the definition.


SEBI also allowed REITs to lend to underlying holding company (hold-co) or a special purpose vehicle (SPV).

“After deliberations, the board decided to have further consultation with the stakeholders on a proposal of allowing REITs to invest at least 50% of the equity share capital or interest in the underlying hold-co/SPVs, and similarly allowing hold-co to invest with at least 50% of the equity share capital or interest in the underlying SPVs,” SEBI said.

Past exemptions, ease of regulations


Earlier, investors were relieved by a Budget proposal that exempt investors from paying dividend distribution tax in such trusts.

REITs earn rental income from the properties held by it. The income generated by the trust is passed on to investors as dividend income among other gains or profits.

SEBI regulations defined an REIT as a trust that can own a property either directly or through a SPV, which would go on to own a property. Since the trust or the SPV is liable to distribute 90% of their income, they were subject to distribution tax on such income.

However, in the last year’s Budget, Finance Minister Arun Jaitley allowed a ‘pass-through’ status to REITs. This meant that investors do not have to worry about any additional tax imbedded in the structure.

SEBI had come out with draft guidelines for the new investment vehicle in October 2013. The regulator deferred a final decision on account of ambiguity on the taxation of the new vehicle. It eventually gave a go-ahead to REITs in 2014.

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