Sebi puts in place guidelines for listed REIT, InvIT on rights issue

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News:The Securities and Exchange Board of India(SEBI) has announced guidelines pertaining to rights issue of units by listed real estate investment trusts (REITs) and infrastructure investment trusts (InvITs).

Facts:

Key features of the guidelines:

  • The issuer will have to disclose objects of the issue, related-party transactions, valuation, financial details, review of credit rating and the grievance redressal mechanism in the placement document.
  • The investment manager on behalf of the REIT and InvIT in consultation with lead merchant banker(s) will decide the issue price before determining the record date.
  • The minimum subscription to be received in the rights issue should be 90% of the issue size through the letter of offer.

About Real Estate Investment Trusts (REITs): 

  • REITs are securities linked to real estate that can be traded on stock exchanges once they get listed
  • Under it, REITs sells units to investors.This money is invested in real estate projects to earn rental income.
  • The income is then distributed to unit holders.Besides regular income from rents and leases,gains from capital appreciation of real estate also form an income for the unit holders.

About Infrastructure Investment trusts(InvITs):

  • InvITs are investment scheme similar to mutual funds.They allow investment from individuals and institutional investors in infrastructure projects to earn a portion of the income as return.
  • They can be considered as a modified version of REITs designed to suit the specific circumstances of the infrastructure sector.
  • They attract long term finance to invest in infrastructure projects such as roads or highways which take some time to generate steady cash flows.

Benefits of REITs and InvITs:

  • Opportunity to invest in stable return-generating instruments with low risk to capital.
  • Decrease in the financing burden on banks by reducing exposure to real estate sector.
  • Increased financing for key sectors such as transportation and energy that will help propel the growth of the country
  • Creation of direct and indirect employment opportunities.