Soon retail investors may be able to invest in Real Estate Investment Trusts (REIT) and Infrastructure Investment Trusts (InvIT). SEBI recently proposed lowering the minimum investment threshold in these schemes to Rs. 15,000 - Rs. 20,000 as against Rs.2 lakh currently.
Despite, the InvIT and REIT regulations coming in to effect from September 2014, there has been limited growth in these products. So far, only three InvITs have been introduced which raised Rs. 10,000 crore while any REIT is yet to be launched.
In a recent consultation paper, SEBI has proposed some changes in the InvIT and REIT regulations basis feedback received from market participants. According to the paper, SEBI has proposed lowering the minimum application and transaction amount, increasing the leverage limit for InvIT and changing the structure of privately placed unlisted InvITs.
Reduction in investment amount for publicly issued InvITs and REITs
Currently, investors have to invest a minimum of Rs. 10 lakh in the InvIT during the offer period and the minimum lot size for trading is Rs. 5 lakh.
In case of REITs, the minimum subscription amount is Rs. 2 lakh while transaction can happen in lots of Rs. 1 lakh.
According to industry representatives, REITs and InvITs tend to be stable, income yielding investment vehicles and the current investment requirements are not in line with its risk profile.
In the consultation paper, SEBI has proposed to lower the minimum application and trading amount to Rs. 15,000 - Rs. 20,000, which will be a lot of 100 units.
Lowering the investment amount will allow retail participation in these products.
Increase in the leverage limit for InvITs
SEBI has proposed to increase the leverage limit for InvITs from current 49% to 70% with an approval from 75% of unrelated unit holders. However, the InvIT can apply for the increased limit only after three years of continuous distribution post listing. Moreover, the credit rating for the project must be AAA.
In addition, the increased debt can be used for purchase of new infrastructure assets and there will be additional disclosure requirements from the InvIT.
New regulatory structure for privately placed unlisted InvITs
Earlier, SEBI allowed for listing of privately placed InvITs. However, as listing made them quasi-public in nature, the regulations for both public and private InvITs was similar. In the paper, SEBI has disallowed listing and raised minimum investment limit to Rs. 1 crore. Consequently, such InvITs will have greater flexibility in terms of structure.
As per the draft proposal, the issuer of such InvITs can determine the number of investors and single investor investment limit. The amount of leverage will also be decided by the issuer in consultation with the investor.
Even current privately placed InvITs can choose to migrate to the new framework with more than 90% investor approval. Consequently, they will be delisted. Conversely, a privately placed unlisted InvIT may choose to list its units on stock exchanges after complying with the necessary requirements said the paper.
