The watchdog has suggested that the sponsors of REITs/InvITs should hold 15 per cent of the capital for a period of three years from the date of listing as there is no mandatory unit holding requirement after three years
SEBI has proposed changes to rules governing REITs and InvITs whereby sponsors will be required to own a certain percentage of units in these investment vehicles. Coming out with a consultation paper on the subject, the markets regulator said the changes are being proposed keeping in mind the interest of unit holders and the structural vulnerabilities associated with absence of a sponsor for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).
The watchdog has suggested that the sponsors of REITs/InvITs should hold 15 per cent of the capital for a period of three years from the date of listing as there is no mandatory unit holding requirement after three years. It has also been proposed to mandate sponsors to hold 5 per cent of the unit capital after 3-5 years, 3 per cent from 5-10 years, 2 per cent from 10-20 years and 1 per cent after 20 years.
"... it is felt that there is a need to have at least one sponsor throughout the life of the REIT/ InvIT and the sponsor needs to hold certain percentage of units on a perpetual basis in order to ensure that there is some alignment of interest with the unitholder," SEBI said in the consultation paper dated February 23.
As the REIT/InvIT industry is in a nascent stage and continuously evolving, there is a need to have at least one sponsor throughout the life of the investment managers, it added. Sebi noted that most of the sponsors have significant shareholding in managers of REITs/InvITs which gives them the right to appoint directors and also has a say in the financing related decisions of the investment managers especially in debt financing.
According to the regulator, a sponsor of a REIT/InvIT whose units have been listed on the stock exchanges for a period of three years can be permitted to declassify as the sponsor subject to certain conditions, including that there has to be a new inducted sponsor in place of existing sponsor getting declassified.
At present, there are 5 REITs and 19 InvITs registered with SEBI. Out of them, 3 REITs and 15 InvITs have raised funds through initial offer and/or further offer. Stakeholders can submit their comments on the consultation paper till March 8.