Sebi allows privately placed InvITs to issue subordinate units
May 28, 2024
Capital markets regulator Sebi on Tuesday notified a framework for issuance of subordinate units by privately placed infrastructure investment trusts (InvITs). The issuance of subordinate units is primarily intended to bridge the valuation gaps that may arise as a result of the difference in the valuation of an asset assessed by the Sponsor (in its capacity of the asset seller) and the InvIT (in capacity of the asset buyer).
Also, the framework has been designed to include risk mitigation measures in respect of such units.
In its notification on Monday, Sebi said subordinate units would only be issued by a privately placed InvIT upon acquisition of an infrastructure project.
It further said that InvIT would not raise funds through public issues if any subordinate units have been issued and are outstanding. To give this effect, the Securities and Exchange Board of India (Sebi) has amended the InvITs rule.
InvITs are a new concept in the Indian market but have been a popular choice globally for their lucrative returns and capital appreciation. An InVIT consists of a portfolio of infrastructure assets like highways.
As per the notification, Sebi said," the subordinate units shall be issued only to the sponsor, its associates and the sponsor group and shall be deemed to be a part of the consideration for the acquisition of the infrastructure project from such sponsor, its associates and the sponsor group".
Sponsor means any company or LLP which sets up the InvIT Further, the subordinate units will not carry any voting rights or distribution rights, and need to be issued in a dematerialized form with an International Securities Identification Number, distinct from that of the ordinary units. The subordinate units would be listed on a recognised stock exchange after their reclassification into ordinary units.
"The subordinate units may be issued by way of an initial offer or any offer subsequent to the initial offer, either along with the issue of ordinary units or without the issue of ordinary units," the regulator said.
The total number of outstanding subordinate units issued by an InvIT at any point of time should not exceed 10 per cent of the total number of outstanding ordinary units issued by such InvIT.
However, an InvIT which has subordinate units exceeding the limit, such InvIT can issue additional subordinate units subject to compliance with this limit. The unitholder holding at least 10 per cent of the total outstanding units of the InvIT, either individually or collectively, would be entitled to nominate one director on the board of directors of the Investment Manager.
Such nominated director needs to recuse from voting on any transaction where such nominee director or associate of such nominee director or the unitholder who nominated such nominee director is a party.
According to Sebi, the minimum time period between the issuance of subordinate units and the entitlement date for reclassification of the subordinate units to ordinary units would be three years. The investment manager is required to disclose the progress related to the achievement of performance benchmark in the annual report of the InvIT.
[The Economic Times]
