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Operational Modalities for Strategic Investments in REITs And InvITs

Finsec Law Advisors

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In 2014, SEBI notified special laws governing Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs) to promote fractional participation over real estate and infrastructural assets. REITs and InvITs were intended to come as a respite to the developers facing a liquidity crunch and to open a new investment product for investors. However, despite the relative success of these structures in other jurisdictions, Indian REITs and InvITs have failed to get sufficient traction.

SEBI has taken a number of steps to facilitate the growth of REITs and InvITs. In another such move, on January 18, SEBI has issued a circular to encourage the participation of strategic investors in REITs and InvITs, for anchoring and reputational benefits and has prescribed: (i) Participation by the strategic investors shall be between 5% and 25% of the total offer size; (ii) The manager of the InvIT/REIT shall enter into a binding unit-subscription agreement with the strategic investor; (iii) The entire subscription price shall be deposited in an escrow account prior to opening of the public issue; (iv) The issue price shall not be less than the issue price determined in the public issue. Strategic investors will be required to bring additional money in case the public issue price is more than what was offered to them and in case it is lower, the strategic investor will not be entitled to a refund; (v) Such investments shall be locked-in for a period of 180 days.

Currently, there are only six InvITs and zero REITs registered with SEBI. Considering the role that strategic investors play in gaining the trust of retail investors and providing initial stability, the circular may attract more participation and investments in REITs and InvITs and give a much-needed boost to the industry.