Sebi cracks down on REITs, InvITs with tougher financial disclosure rules
New Delhi, Feb 17, 2025
SEBI is tightening the rules around financial disclosures by REITs and InvITs to make sure that investors have access to clear, detailed, and up-to-date financial information
Market regulator Securities and Exchange Board of India (Sebi) has proposed new rules regarding how Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) should disclose their financial information, specifically in their public offer documents.
Here are the proposals:
What are REITs and InvITs?
REITs and InvITs are investment vehicles that pool money from investors to invest in real estate and infrastructure projects, respectively. They are listed on stock exchanges, allowing investors to buy shares in them like other companies.
The Proposed Changes:
Financial Disclosures in Offer Documents: When REITs and InvITs want to raise money by offering shares to the public (initial public offerings or IPOs), they need to clearly disclose detailed financial information. The new proposal suggests that they will need to provide combined financial statements, even if the trust hasn’t been operating for long. This means they’ll have to show the financial health of the entire trust, including any entities they are linked to.
Ongoing Compliance after Listing: After the public offering, the trust will have to keep sharing financial updates, just like companies do once they are listed on stock exchanges. This includes:
Audit of Financial Statements: For follow-up offerings (when they raise more money in the future), REITs and InvITs will need to provide consolidated, audited financial statements, not just summary versions.
No Condensed Financial Statements: Currently, these trusts can sometimes present financial summaries (called "condensed financial statements") that don’t give the full picture. SEBI wants to remove that option, making them follow stricter rules for full disclosure.
Quarterly Reports: Instead of providing updates on how the money raised is being used only twice a year, SEBI now wants REITs and InvITs to report this quarterly. This is to make sure investors are kept well-informed about where their money is going.
Net Borrowing Ratio: The proposal also calls for REITs and InvITs to disclose their net borrowing ratio (i.e., how much debt they have relative to their assets) in their financial reports. This will help investors understand the financial health of the trust, especially if there are any borrowings.
Why the changes?
These updates are designed to improve transparency and protect investors. By ensuring that REITs and InvITs share detailed and up-to-date financial information, investors will be able to make more informed decisions.
What happens next?
SEBI is asking the public for feedback on these proposed changes by March 7. People can submit their views online, and after considering the responses, SEBI may finalize these new rules.
[The Business Standard]
