SEBI has finalised the draft norms of InvITs
InvITs or Infrastructure Investment Trusts are proposed in the Budget 2014-15 as an innovation to REITs to improve funding in infrastructure projects. These InvITs will also have same tax benefits as REITs. InvITs are proposed with an aim to reduce the pressure in the existing banking system for infrastructure loans. According to Hon’ble Finance Minister, these two instruments (REITs and InvITs) will attract a lot of long term finance from foreign and domestic sources. Now Security Exchange Board of India (SEBI) has published the draft regulations of InvITs in accordance with the conductive tax regime proposed in the budget.
The following are the regulations mentioned in the draft regulations published by SEBI. InvITs can invest in any of the infrastructure projects directly or through an Special Purpose Vehicle(SPV). But in case of infrastructure projects through PPP, InvITs are supposed to invest only through SPVs. This ensures the security and transparency.
An InvIT can raise funds either through public issue of units or through private placement from Qualified Institutional Buyers and body corporate but not both.
In the case of raising funds through public issue of units, that InvIT should invest at least 80 per cent of its funds only on completed income generating projects and 20 per cent in under construction and other projects with not more than 10 per cent on under construction projects. This step is taken to ensure that the public funds will be secured and income generating. The minimum subscription size in this type of InvITs is Rs 5 lakh.
In the case of raising funds through private placement from qualified institutional buyers and corporate body, that InvIT can invest more than 10 per cent of its funds on under construction projects. The minimum subscription size in this type of InvITs is Rs 1 crore.
Both the InvITs before making an offer to public or private institutions may investors such as banks, international multilateral financial institutions, FPIs including sovereign wealth funds, etc., which together should invest minimum 5 per cent of size of InvIT or amount as specified by SEBI.
The proposed holding of an InvIT in the underlying assets shall be not less than Rs 500 crore and the offer size of the InvIT shall not be less than Rs 250 crore at the time of initial offer of units. An InvIT cannot invest more than 49 per cent of the value of InvIT’s assets on a particular infrastructure project. In case of investing more than 25 per cent of the value of InvIT’s assets, requirement of credit rating and unit holders approval has been made mandatory.
SEBI has published the draft regulations of REITs last year in which it is given that an REIT can only invest in completed and income generating projects. But in the case of InvITs, the government has allowed investment in the under-construction projects under certain conditions mentioned above. In the case of REITs, the minimum unit size is Rs 1 lakh which is Rs 5 lakh in the case of InvITs.
