Securities and Exchange Board of India (SEBI), vide two separate circulars dated March 28, 2025 (SEBI Circulars), has amended Master Circulars for real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) dated May 15, 2024 (Master Circulars) to promote ease of doing business for REITs and InvITs.
Key highlights of the SEBI circulars are outlined below:
- Review of lock-in provisions for preferential issue of units for REITs and InvITs
Under Regulation 11(3) of SEBI (REIT) Regulations, 2014 (REIT Regulations) and Regulation 12(3) of SEBI (InvIT) Regulations, 2014 (InvIT Regulations), sponsor and sponsor group are required to hold minimum 15% of the total units of investment trusts for three years from the date of listing of units in initial offer.
However, under paragraphs 10.6.1 and 7.6.1 of the Master Circulars for REITs and InvITs, lock- in requirements applicable to sponsor and sponsor group at the time of preferential issue of units require that not more than 25% of total unit capital of REIT or InvIT shall be locked in for three years from the date of trading approval.
Accordingly, Master Circulars are amended to align the number of units required to be locked-in at the time of preferential issue of units by REITs and InvITs with the lock-in provisions applicable at the time of initial public offer.
For REITs, the revised framework stipulates that 15% of the units allotted to sponsor(s) and sponsor group(s) shall be locked in for three years from the date trading approval is granted, while the remaining units will be subject to a one-year lock-in period.
Similarly, for InvITs, 15% of the units allotted to sponsor(s) and sponsor group(s) shall be locked-in for a period of three years from the date trading approval is granted if project manager of the InvIT is the sponsor or an associate of the sponsor and continues to remain in this capacity for these three years. If this condition is not met, lock-in threshold will be 25% of the units allotted to sponsor(s) and sponsor group(s). The remaining units allotted in excess of these thresholds will be subject to lock-in period of one year from the date trading approval is granted.
Additionally, sponsor(s) and sponsor group(s) must always comply with the minimum unitholding requirements, as applicable under REIT Regulations and InvIT Regulations.
- Approving inter-se transfer of locked-in units between sponsor and sponsor group
Units allotted to the sponsor or sponsor group under preferential issue which are subject to lock-in may be transferred between sponsor and any member of its sponsor group with the condition that remaining lock-in period on such units continues for the transferee who shall not be eligible to transfer the units till the expiration of the lock-in period originally applicable to such units.
It is clarified that where there are multiple sponsors in a REIT/InvIT, locked-in units held by the sponsor or sponsor group can only be transferred within that sponsor or its own sponsor group. Transfers of locked-in units to any other sponsor or their sponsor group are not permitted.
Further, if there is a change in the sponsor, lock-in units may be transferred from the outgoing sponsor or its sponsor group entities to the incoming sponsor or its sponsor group entities provided that the incoming sponsor or its sponsor group entities comply with the minimum unitholding requirements under REIT Regulations and InvIT Regulations after such transfer.
- Guidelines for follow-on offer of units by publicly offered REITs and InvITs
The key provisions regulating follow-on offer of units are as follows:
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- For issuing units by way of follow-on offer, REITs and InvITs must make an application to the relevant stock exchanges to seek in-principle approval for listing of such units and choose any one of them as the designated stock exchange. Investment manager and merchant banker will be responsible for obtaining the in-principle approval and final approvals from stock exchanges.
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- Investment trusts must mandatorily issue units in dematerialized form.
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- REITs and InvITs must maintain a minimum public unitholding of 25% of their total outstanding units on a post issue basis.
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- Regulation 15 of REIT Regulations and InvIT Regulations on follow-on offer document and advertisement shall apply to a follow-on offer.
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- Regulation 14(20) and (21) of REIT Regulations and Regulation 14(4)(t) and (u) of InvIT Regulations on payment of interest upon failure to allot or list units shall mutatis mutandis apply to a follow-on offer.
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- Timelines for allotment and listing of units will be as per the timelines applicable to initial public offer under Master Circulars.
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- REITs and InvITs cannot issue additional units in any manner (except pursuant to an employee benefit scheme) during the period between filing the draft follow-on offer document or follow-on offer document and listing of the issued units or refund of application monies, as the case may be.
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- Investment trusts are required to file draft follow-on offer document with SEBI and relevant stock exchanges through merchant bankers. Merchant bankers are required to undertake due diligence and furnish a certificate in the prescribed form along with the draft follow-on offer document. SEBI will provide its observations within the timelines specified in Chapter 2 of Master Circulars. Follow-on offer document will be filed with SEBI and stock exchanges after incorporating SEBI’s observations.
Conclusion:
SEBI’s amendments aim to enhance ease of doing business and make fund raising more efficient. The amendments will provide operational flexibility and ensure that both investment trusts remain attractive investment vehicles.