SEBI releases draft guidelines on infrastructure investment trusts

The Securities and Exchange Board of India (Sebi) released draft guidelines for infrastructure investment trusts (InvITs) to enable financing and investment opportunities in long-term infrastructure projects. The draft guidelines by Sebi follow the proposal made by finance minister Arun Jaitley in pursuance to the Budget speech made on 10/07/2014.

InvITs are designed to get tax benefits and will collect funds for investments in infrastructure projects, including PPP (public-private partnership). InvITs can be listed on the stock exchanges, Sebi said. The proposed holding of an InvIT in the underlying assets shall be a minimum Rs.500 crore and the offer size of the InvIT shall not be less then Rs.250 crore at the time of initial offer of units.

The guidelines state that a designated sponsor with a minimum net worth of Rs.10 core (if it is a body corporate or a company), or minimum net tangible assets of Rs.10 crore (in case it is a Limited Liability Partnership) will be eligible for InvITs, Sebi said.

Moreover, in the case where a sponsor is a developer, he must possess minimum experience of five years and at least two projects having achieved financial closure.

The aggregate consolidated borrowing of the InvIT and the underlying SPVs shall never exceed 49% of the value of InvIT assets. However, this may exclude any debt infused by the InvIT in the underlying SPV. Further, for any borrowing exceeding 25% of the value of InvIT assets, requirement of credit rating and unit holders approval has been made mandatory, Sebi said.

“As an innovation, a modified REITS-type structure for infrastructure projects is also being announced as InvITs, which would have a similar tax-efficient pass-through status for PPP and other infrastructure projects. These structures would reduce the pressure on the banking system while also making available fresh equity... I have provided a conducive tax regime for InvITs and REITS to be set up in accordance with regulations of the Sebi,” Jaitley had announced, while presenting the Finance Bill FY14-15  in the Parliament.