Sebi permits privately placed InvITs to issue subordinate units
ECONOMY & POLICY

Sebi permits privately placed InvITs to issue subordinate units

The Securities and Exchange Board of India (Sebi) has approved a framework for the issuance of subordinate units by privately placed infrastructure investment trusts (InvITs). This move aims to address valuation gaps that may arise during the acquisition of infrastructure projects by InvITs, bridging the disparity in asset valuation between the sponsor and the InvIT. Additionally, the framework incorporates risk mitigation measures for these units.

Under the revised framework, subordinate units will be issued by privately placed InvITs exclusively upon acquiring an infrastructure project. Sebi's notification specifies that if any subordinate units are issued and outstanding, the InvIT cannot raise funds through public issues. This amendment to the InvIT rules ensures compliance with the new provisions.

InvITs, although a relatively new concept in the Indian market, have gained popularity globally for their potential for attractive returns and capital appreciation. They typically comprise a portfolio of infrastructure assets such as highways.

According to Sebi's guidelines, subordinate units will be offered solely to the sponsor, its associates, and the sponsor group as part of the consideration for acquiring the infrastructure project. These units will not confer voting or distribution rights and must be issued in dematerialised form with a distinct International Securities Identification Number.

Following issuance, subordinate units will be reclassified into ordinary units and listed on a recognised stock exchange. Sebi stipulates that the total number of outstanding subordinate units issued by an InvIT should not exceed 10% of the total number of outstanding ordinary units. However, an InvIT exceeding this limit can issue additional subordinate units while adhering to this restriction.

Furthermore, Sebi mandates a minimum three-year period between the issuance of subordinate units and their reclassification into ordinary units. Additionally, the investment manager is required to disclose progress related to performance benchmarks in the InvIT's annual report.

Sebi's framework aims to enhance transparency, governance, and risk management within the InvIT sector, fostering investor confidence in infrastructure investments.

(ET Infra)

The Securities and Exchange Board of India (Sebi) has approved a framework for the issuance of subordinate units by privately placed infrastructure investment trusts (InvITs). This move aims to address valuation gaps that may arise during the acquisition of infrastructure projects by InvITs, bridging the disparity in asset valuation between the sponsor and the InvIT. Additionally, the framework incorporates risk mitigation measures for these units. Under the revised framework, subordinate units will be issued by privately placed InvITs exclusively upon acquiring an infrastructure project. Sebi's notification specifies that if any subordinate units are issued and outstanding, the InvIT cannot raise funds through public issues. This amendment to the InvIT rules ensures compliance with the new provisions. InvITs, although a relatively new concept in the Indian market, have gained popularity globally for their potential for attractive returns and capital appreciation. They typically comprise a portfolio of infrastructure assets such as highways. According to Sebi's guidelines, subordinate units will be offered solely to the sponsor, its associates, and the sponsor group as part of the consideration for acquiring the infrastructure project. These units will not confer voting or distribution rights and must be issued in dematerialised form with a distinct International Securities Identification Number. Following issuance, subordinate units will be reclassified into ordinary units and listed on a recognised stock exchange. Sebi stipulates that the total number of outstanding subordinate units issued by an InvIT should not exceed 10% of the total number of outstanding ordinary units. However, an InvIT exceeding this limit can issue additional subordinate units while adhering to this restriction. Furthermore, Sebi mandates a minimum three-year period between the issuance of subordinate units and their reclassification into ordinary units. Additionally, the investment manager is required to disclose progress related to performance benchmarks in the InvIT's annual report. Sebi's framework aims to enhance transparency, governance, and risk management within the InvIT sector, fostering investor confidence in infrastructure investments. (ET Infra)

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