Sponsors and non-sponsors of privately listed infrastructure investment trusts (InvIT) may soon have easier minimum-contribution and lock-in-period norms when taking the InvIT public, according to new proposals from the capital markets regulator.
In a consultation paper issued on Tuesday, the Securities and Exchange Board of India (SEBI) reviewed the framework to convert privately listed InvITs to public InvITs. The paper also puts forward easier disclosure norms at the time of conversion and aligning these norms with the disclosure requirements of follow-on offerings.
The regulator has suggested doing away with the sponsors' minimum sponsor contribution, lock-in on this contribution and lock-in on units held in excess of this contribution. Currently, an InvIT sponsor must make a minimum contribution of 15% of the units issued to the public or 15% of the post-issue capital, which is then locked in for 18 months post listing. Also, units held in excess of this minimum contribution are locked in for a year from the date of listing.
India has a number of privately listed InvITs, which refers to trusts that issue units to institutional investors via private placements. These include Cube Highways Trust, which is backed by private equity firm I Squared Capital, and Highways Infrastructure Trust, which is sponsored by PE giant KKR.
Public InvITs are listed on stock exchanges and can widen their investor base by issuing units to retail investors, too. In fact, the National Highways Authority of India said last month that it was considering launching a new InvIT that would be open to retail investors. The NHAI is the sponsor of the National Highways Infra Trust, a privately listed InvIT that counts Canadian pension funds CPPIB and Ontario Teachers’ Pension Plan as its key investors.
The SEBI paper pointed out that the regulations for InvITs were amended in August 2023 to introduce perpetual unitholding requirements for sponsors and sponsor groups. Therefore, “any fresh issuance of units to the public for the purpose of conversion of a private InvIT into a public InvIT will result in increased commitment from the sponsor(s) and/or sponsor group(s) to comply with the perpetual minimum unitholding requirement”, it said.
For the non-sponsors, the regulator has proposed to do away with the one-year lock-in of units held prior to taking the InvIT public.
The paper said that the imposition of lock-in makes the units of the InvIT non-tradable and hurts the objective of increasing market liquidity and investor participation.
“Also, institutional investors in a private InvIT like mutual funds, pension and provident funds, insurance companies etc. may be bound by the terms and conditions of their scheme offer documents and / or investment guidelines and hence units held by them may not be subject to lock-in as the same may be detrimental to their interest and also against the interest of their underlying investors,” the paper noted.
