Sebi overhauls preferential allotment rules for REITs, InvITs

Sebi on Monday overhauled the pricing norms for preferential allotment of units by Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). Under the new framework, the pricing formula for allotment of units under preferential issue would be the Volume-Weighted Average Price (VWAP) of weekly highs and lows for 90 trading days or 10 trading days, whichever is higher.

At present, the pricing formula in a preferential allotment is the VWAP of the last two weeks or the last 26 weeks, whichever is higher. The preferential issue of units to "institutional investors" not exceeding five will have to be made at a price not less than the 10 trading days' VWAP of the related units quoted on a stock exchange preceding the relevant date, according to two separate circulars.

The regulator said the preferential issue of units would not be made to any person who has sold or transferred any units of the issuer during the 90 trading days preceding the relevant date. At the present, the limit is six months. In case any person belonging to the sponsor has sold or transferred their units of the issuer during the 90 days preceding the relevant date, all sponsors would be ineligible for allotment of units on the preferential basis.

However, the restriction would not apply to a sponsor, in case any asset is being acquired by the REIT or InvIT from that sponsor, and that the preferential issue of units is being made to that sponsor, as full consideration for the acquisition of such asset. Also, the regulator has defined frequently traded units as the units of REIT or InvIT. Those are units in which the traded turnover on a stock exchange during the 240 trading days preceding the relevant date is at least 10 percent of the total number of issued and outstanding units.

Post allotment, the REIT or InvIT concerned would have to make an application for listing of the units and the same would be listed within two working days from the date of allotment. Currently, the time period is seven days. In case the REITs or InvIT conerned fail to list the units within the specified time, the money received would be refunded through verifiable means within four working days from the date of the allotment.

Further, if the money is not repaid within the specified time, then the REIT or InvIT, manager of such units, and its director or partner would be jointly liable to repay that money with an annual interest rate of 15 per cent from the expiry of the fourth working day. In November 2019, the regulator came out with guidelines for preferential issue as well as institutional placement of units by REITs and InvITs.

REITs and InvITs are relatively new investment instruments in the Indian context but are extremely popular in global markets. While a REIT comprises a portfolio of commercial real assets, a major portion of which is already leased out, InvITs comprise a portfolio of infrastructure assets such as highways, and power transmission assets.