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SEBI proposes framework for REITs and InvITs with respect to (a) issuance of subordinate units; and (b) Unit Based Benefits for the employees

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The Securities and Exchange Board of India (SEBI) is seeking public input on a Consultation Paper outlining a proposed framework for two distinct aspects: (a) the issuance of subordinate units by Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) to sponsors, their associates, and the sponsor group; and (b) the provision of Unit Based Benefits (UBEB) to employees of the Manager of REIT and Investment Manager of InvIT.

At present, the respective regulations under Regulation 4 only permit REITs and InvITs to issue subordinate units to the sponsors and associate carrying inferior voting or any other rights compared to other units. However, there is no framework detailing the mechanism for issuance of subordinate units.

Further, at present, the regulations do not permit Manager of REIT/Investment Manager of InvIT to acquire units of REIT/ InvIT in order to offer benefits to its employees based on such units.

Key points proposed under framework pertaining to subordinate units: 

(a)To be issued only to the sponsor(s),its associates and sponsor group which would have only inferior rights compared to the ordinary units which can be issued either in the initial offer or subsequent offer (this would require approval from 75% of the unit holders;)

(b)The subordinate units will be unlisted and carrying a separate ISIN and will be issued only in dematerialized form;

(c) Mandatory lock in till the time these units get converted to ordinary units and / or are extinguished;

(d) However, for the purposes of mandatory minimum unitholding requirement applicable to sponsor(s) and sponsor group, these will not be considered

(e) minimum time gap between issuance of subordinate units and entitlement date/event for conversion of subordinate units to ordinary units shall be one year

(f) converted units shall be listed and tradeable on the stock exchanges on the receipt of approval from the stock exchanges.

Key points proposed under the framework pertaining to Unit Based Employee Benefits (UBEB)

(a) Implementation of the UBEB scheme to be done through a separate Employee Benefit Trust

(b) Manager may subscribe to units in lieu of management fees for the purpose of UBEB and this issuance of units in lieu of management fees shall be approved by seventy five percent of unitholders

(c) units held by EBTrust shall be used only for the limited purpose of providing unit based employee benefits and the trust ought not to transfer or sale of units of REIT/InvIT held by it except for providing unit based benefits to the employees of the Manager/Investment Manager

(d) SEBI has also clarified that the provisions of PFUTP Regulations and Insider Trading Regulations will be applicable to the Manager / Investment manager, its directors, its key managerial personnel, recipients of UBEB, EBTrust, etc.

Readers are welcome to send their views to Regstreet Law Advisors at info@regstreetlaw.com.

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