The Securities and Exchange Board of India (SEBI) has proposed allowing real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) to hold minority stakes in under-construction projects and easing the investor consent process.
In a consultation paper issued on August 6, the market regulator suggested REITs and InvITs be permitted to invest in third-party under-construction projects without a controlling interest, subject to certain conditions.
These conditions include that such investments be within the existing limits set for under-construction projects; that they be restricted to investee entities engaged in activities associated with real estate or infrastructure and holding at least 80% or 90% of their assets in such projects; and that there be a clear glide path for the REIT or InvIT to achieve the required stake in the investee entity.
This proposal follows representations from industry associations, which told the regulator that the development phase of such projects needs structured capital, and that allowing REITs and InvITs to acquire minority stakes in such assets would help them build a pipeline of stable, revenue-generating assets while minimizing exposure to construction-related risks.
Secondly, SEBI suggested easing the investor consent seeking process. Currently, REITs and InvITs need approval from unitholders representing at least 75% of the value of outstanding units for certain matters.
However, as industry associations pointed out, investors often do not participate in voting despite the process being easily accessible. SEBI has, therefore, proposed changing the approval threshold to 75% of the total votes cast, instead of 75% by value of all unitholders.
The consultation paper also suggested clarifying rules governing REITs' ownership of remote common infrastructure, citing contradictory provisions in existing regulations. It also proposed reducing the cooling-off period for purchase or sale of promoters' stakes in illiquid, privately-listed InvITs from 12 weeks to eight weeks.