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Published on 5 April 2025

SEBI's Amendments to Enhance EoDB and Investor Protection in InvITs and REITs

SEBI's Proposed Amendments for Enhancing EoDB and Investor Protection in InvITs and REITs

On December 18, 2024, the Securities and Exchange Board of India (SEBI) proposed significant amendments to the SEBI (Infrastructure Investment Trusts) Regulations, 2014 and SEBI (Real Estate Investment Trusts) Regulations, 2014. These amendments are designed to improve the ease of doing business (EoDB) and enhance investor protection within the realms of Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs).

Objective

The Board Memorandum outlines the proposed changes aimed at facilitating EoDB and ensuring investor protection for InvITs and REITs. It also aims to inform the Board about upcoming guidelines to be issued through circulars, further operationalizing these measures.

Background

The InvIT and REIT Regulations were initially notified on September 26, 2014. As of March 31, 2024, the asset values under these trusts include ₹1,39,992 crores (4 REITs) and ₹5,42,385 crores (19 InvITs), totaling ₹6,82,377 crores. The SEBI Hybrid Securities Advisory Committee (HySAC) plays a crucial role in recommending the development and regulation of these hybrid securities.

EoDB and Investor Protection Recommendations

Consultation Process

A series of recommendations have been received from various stakeholders, including the Indian REIT Association (IRA), Bharat InvIT Association (BIA), and the HySAC. Following these, SEBI published a consultation paper soliciting public feedback regarding the proposed measures, which received responses from 17 entities, predominantly agreeing with the suggested changes.

Proposed EoDB Measures

  1. Transfer of Locked-In Units

    • Current Regulation: Regulations 11(3) of REITs and 12(3), 12(3A), and 12(5) of InvITs currently restrict the transferability of locked-in units.
    • Proposal: Facilitate the transfer of locked-in units among sponsor group entities, with conditions to maintain the lock-in period continuity.

  2. Definition of Common Infrastructure

    • Current Regulation: Common infrastructure is not defined within the REIT Regulations.
    • Proposal: Clarify that REITs can invest in common infrastructure facilities and amenities exclusive to their assets.

  3. NRC Composition

    • Current Regulation: Requires Nomination and Remuneration Committees to consist entirely of independent directors.
    • Proposal: Allow a mix of independent and non-executive directors in the NRCs of REITs and InvITs, aligning with LODR Regulations.

  4. Quarterly Results Reporting

    • Current Regulation: Regulatory provisions require the investment manager's quarterly results.
    • Proposal: Amend the norm to focus specifically on the quarterly results of the InvITs.

  5. Hedging Instruments

    • Current Regulation: REITs and InvITs cannot hedge interest rate risks through derivatives.
    • Proposal: Permit participation in interest rate derivatives to mitigate hedging risks effectively.

  6. Enhanced Borrowing Conditions

    • Current Regulation: Stringent criteria for borrowing beyond 49%.
    • Proposal: Simplify the requirements for InvITs to accommodate quicker access to debt capital.

  7. Board Vacancy Fill Timeline

    • Current Regulation: No specific timeline for filling director vacancies.
    • Proposal: Introduce timelines to fill vacancies, ensuring compliance with board composition.

  8. Credit Rating Clarity

    • Current Regulation: Unclear specifications regarding the type of required credit ratings.
    • Proposal: Define that needed ratings are issuer ratings for REITs and InvITs.

  9. Investment Flexibility

    • Current Regulation: Restrictions on asset definitions lead to confusion regarding real estate versus infrastructure asset categorization.
    • Proposal: Allow assets categorized as infrastructure under specific conditions to be classified as real estate assets.

Investor Protection Measures

  1. Investment in Unlisted Equity Shares

    • Current Regulation: Allows certain investments in unlisted equity shares.
    • Proposal: Align REIT regulations with InvIT restrictions, limiting investments in unlisted equity shares.

  2. Investment in Liquid Mutual Funds

    • Current Regulation: Different limits for REITs and InvITs regarding liquid mutual funds.
    • Proposal: Standardize regulations to permit REITs to invest in liquid mutual funds under set credit risk criteria.

  3. Trustee Roles and Responsibilities

    • Current Regulation: Broad responsibilities outlined for trustees.
    • Proposal: Introduce precise principles to enhance transparency and accountability among trustees for unitholder benefit.

Conclusion

These proposed amendments by SEBI represent a significant step towards streamlining the regulatory landscape for InvITs and REITs, thereby bolstering EoDB and investor protection. The adoption of these changes will ensure the trusts operate more efficiently and transparently, catering effectively to the needs of their investors and stakeholders. The Board has been requested to review these proposals and the accompanying draft amendments for implementation.

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