Security and Exchange Board of India
MUMBAI: Market regulator Sebi today notified norms for listing of business trust structures, REITs and InvITs that would help attract more funds in a transparent manner into realty and infrastructure sectors.
Real Estate Investment Trust (REIT) and Infrastructure Investment Trust (InvITs), whose norms were approved by the regulator in August, would get tax incentives.
For both trusts, the minimum initial offer size should be Rs 250 crore with a public float of at least 25 per cent, according to the Securities and Exchange Board of India (Sebi).
The minimum asset base for these trusts to get listed is Rs 500 crore.
To ensure transparency, these trusts would be subject to stringent norms on disclosure as well as related party transactions.
In separate but similarly-worded regulations for the two trusts, Sebi said that all related party transactions should be at "arms-length" in accordance with relevant accounting standards.
REIT and InvIT are required to make investments either directly or through Special Purpose Vehicles. In case of PPP projects, money can be put in only through SPV.
In the case of REITs, the minimum public holding should be 25 per cent while the total number of outstanding units at all times as well as the number of unit holders -- who are part of the public -- should be 200.
Under both the initial offer and follow-on public offer, the REIT shall not accept subscription of an amount less than two lakh rupees from an applicant, as per the norms.
Sebi has said that at least 80 per cent of the value of REIT assets should be invested in completed and rent generating properties.
REIT is barred from investing in vacant land or agricultural land or mortgages other than mortgage backed securities.
"Not less than seventy five per cent of the revenues of the REIT and the SPV, other than gains arising from disposal of properties, shall be, at all times, from rental, leasing and letting real estate assets or any other income incidental to the leasing of such assets," Sebi said.
At least two projects should be held by a REIT, either directly or through SPV. Out of that, only up to 60 per cent of the asset value can be invested in one project.
With regard to InvITs, the regulator said they should put in at least 80 per cent of the value of the assets in completed and revenue generating infrastructure assets should, among others, raise funds only through public issue of units.
In this case, minimum subscription from any investor in initial and follow-on offer would have to be Rs 10 lakh.
"The units proposed to be offered to the public not less than 25 per cent of the total of the outstanding units of the InvIT and the units being offered by way of the offer document," Sebi added.
A investment manager of InvIT can apply for delisting if among others, there are no projects or assets remaining under the trust for more than six months and it does not propose to invest in any project in future.
For trusts, that propose to invest over ten per cent of its asset value in under construction projects, funds can be raised only through private placement to Qualified Institutional Buyers and body corporates.
In such cases the trusts can raise minimum investment of Rs 1 crore from any investor and "from not less than five and not more than one thousand investors".
In case of REIT and InvIT failing to get listed within three years from the date of getting registered with Sebi, they would have to surrender their registration certificates.
Both REITs and InvITs are expected to help in attracting billions of dollars into the country's real estate and infrastructure segments.
There can be a maximum of three sponsors for REIT and InvIT.
In the case of real estate investment trust, the collective net worth of sponsors should be at least Rs 100 crore and on individual basis, the same has been fixed at minimum level of Rs 20 crore.
A manager for REIT should have a minimum net worth of Rs 10 crore in case of a "body corporate or a company" while the net tangible assets of value should not less than Rs 10 crore where the manager is a LLP (Limited Liability Partnership).
Sebi said that for InvIT, each sponsor should have a net worth of not less than Rs 100 crore if it is a body corporate or a company and the criteria is same for net tangible assets pertaining to LLP.
Among others, an investment manager for InvIT should have a net worth of at least Rs 10 crore and is required to have an "office in India from where the operations pertaining to the InvIT is proposed to be conducted".
While presenting the Union Budget 2014-15, Finance Minister Arun Jaitley had said "I intend to provide necessary incentives for REITs which will have pass through for the purpose of taxation.
As an innovation, a modified REIT-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 (public-private partnership)and other infrastructure projects".