Sebi Guidelines For Rights Issue From Unlisted InvITs Have Little Use For Retail Investors

The recently issued guidelines by Sebi in respect of Unlisted Infrastructure Investment Trust (InvITs) will be yet another investment option for highly seasoned and High Networth Individual (HNIs) investors as a category for long term. However the guidelines will not be of much use to the retail investors as the minimum amount stipulated for the right issues is Rs 1 crore, says market experts. 

“Infrastructure as a sector provides meaningful returns for investors with a significantly long-time horizon, hence investors should evaluate these investment avenues only for longer-term investment purposes,” says Devang Kakkad, Head of Research, Equirus Wealth Management.

To enable unlisted InvITs to raise funds through rights issues of their units, the market regulator on November 4, 2020, issued guidelines.

“For the purpose of this circular ‘rights issue’ shall mean an offer of units by an unlisted InvIT to the unit holders of the InvIT as on the record date fixed for the said purpose,” Sebi says.

The investment manager shall prepare the application form and also make arrangements for the distribution of the same along with a letter of offer to all unit holders. The investment managers are also required to decide the issue price on behalf of the InvIT before determining the record date. The minimum allotment to any investor should be Rs 1 crore.  

“Unlisted InvITs have emerged as an investment avenue for large institutional investors, considering they are like mutual funds in structure.  Private unlisted InvITs are now given the same status as public listed InvITs making them entitled to the same tax treatments provided under the Act. This will help increase liquidity as many investors are stuck due to the dry secondary market liquidity” says Nitin Shakdher, Founder & CEO at the Green Capital Single Family Office.

To make a rights issue of units, a resolution of the board of directors of the investment manager should be passed for approval. Further, the respective promoter, partner or director of the sponsors or investment manager of the InvIT should not be a fugitive economic offender or barred from accessing the securities market by the board.

The structure of InvITs is similar to a mutual fund where you have a sponsor - trustees and investment manager. However, here the underlying physical assets are mainly electricity power plants, airports, which are owned by the InvITs.

The income from these assets are distributed to the investors post expenses. “The objective is once the infrastructure company has completed the project, the same can be transferred to a Special Purpose Vehicle (SPV) which would run, manage and operate the assets. It is basically de-linking from the construction stage and post construction stage,” explains Juzer Gabajiwala, Director, Ventura Securities.