The Securities and Exchange Board of India (SEBI), the market regulator, has recently opened the floor for public comments regarding the issuance of subordinate units by Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).
SEBI had initially released a consultation paper in December of the previous year, seeking input on the framework for the issuance of subordinate units by REITs and InvITs to sponsor their associates and sponsor group.
Following the feedback received from the public, SEBI has now introduced additional proposals, prompting another round of public comments. These proposals address three key aspects:
1. **Ceiling of 10% on units:**
– The issuance of subordinate units aims to address valuation gaps that may arise due to differences in asset valuation. To manage this, SEBI proposes to set a ceiling, suggesting that the total number of subordinate units should not exceed ten percent of the acquisition price of the asset.
2. **Inferior voting rights:**
– REIT subordinate units are proposed to carry inferior voting rights compared to other units. The new proposal clarifies that subordinate units will specifically carry inferior voting rights, inferior distribution rights, or both.
3. **No further change in terms and conditions:**
– SEBI suggests that, given the already envisioned entitlement date for achieving performance benchmarks, any additional changes in the terms and conditions of subordinate units will not be permitted.
SEBI has invited the public to provide comments on these proposals, with a deadline set for January 31, 2024. Interested parties can submit their comments and suggestions through the link provided on SEBI’s website.
These proposals aim to refine the regulatory framework surrounding the issuance of subordinate units by REITs and InvITs, ensuring transparency and effective governance in these investment vehicles.
