Market regulator Securities and Exchange Board of India (SEBI) has recently invited public comments with regards to the issuance of subordinate units by REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trust).
Notably, Sebi had issued a consultation paper in December last year inviting comments on the framework for issuance of subordinate units by REITs and InvITs to sponsor their associates and sponsor group.
In view of the public comments received, the regulator has now decided to invite public comments on certain additional proposals.
These proposals relate to the ceiling on the extent of subordinate units that can be issued, bringing uniformity in the nature of rights conferred on subordinate units and finally, dealing with changes in terms and conditions of the subordinate units post issuance.
The regulator has made these fresh proposals and sought comments from the public:
Ceiling of 10% on units: The issuance of these units is meant to bridge the valuation gaps that may arise as a result of the difference in the valuation of an asset.
Typically, these valuation gaps will not be too wide or broad and hence the proposal to specify an upper ceiling up to which subordinate units can be issued. So, the Sebi has proposed that the total number of subordinate units will not exceed ten percent of the acquisition price of the asset.
Inferior voting rights: The REIT subordinate units will carry only inferior voting rights compared to other units. It is, therefore, proposed to provide clarity on the nature of inferior rights which the subordinate units may carry.
Now, the Sebi's proposal says that subordinate units will carry only inferior voting rights or inferior distribution rights or both.
No further change in terms and conditions: The regulator wrote in its consultation paper that since the entitlement date for achievement of performance benchmark is already envisaged, it is proposed that any other change in terms and conditions of the subordinate units will not be permitted.
The public comments are invited on these proposals and the comments/ suggestions need to be submitted latest by Jan 31, 2024 at the link given on Sebi’s website.
