SEBI: Accelerated Follow-on Offers for REITs and InvITs

On Thursday, markets regulator SEBI introduced a proposed framework aimed at streamlining fast-track follow-on offerings (FPOs) for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) to enhance the efficiency of fundraising.

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Lock-in Provisions for Sponsors

SEBI has suggested a three-year lock-in period for the preferential allotment of units to sponsors of REITs and InvITs. The Securities and Exchange Board of India (SEBI) has invited public feedback on these proposals, with a submission deadline of March 13.

As part of its consultation process, SEBI recommended that 15% of the units allocated to sponsors and their affiliated groups remain locked in for three years from the date of trading approval. The remaining allotted units would be subject to a one-year lock-in from the same date.

Regarding the follow-on offer (FPO), SEBI emphasized that it serves as a method for raising capital after the initial public offering (IPO) of units.

According to SEBI's proposal, any REIT or InvIT planning an FPO must apply to all stock exchanges where its units are listed and secure in-principle approval for listing on these exchanges, selecting one as the designated stock exchange.

The responsibility for obtaining in-principle approval, as well as securing final listing and trading approvals, would rest with the manager and the merchant bankers.

Furthermore, SEBI proposed that the minimum public unitholding should be at least 25% of the total outstanding units of the REIT after the issuance.

"A REIT/InvIT shall not undertake any further issue of units in any manner whether by way of public issue, rights issue, preferential issue, institutional placement or otherwise, except pursuant to a unit based employee benefit scheme (if any) during the period between the date of filing of the draft follow-on offer document/follow-on offer document for follow-on offer and the listing of the units or refund of application money," SEBI proposed.

SEBI Suggestions

Additionally, SEBI suggested that REITs and InvITs must submit the draft follow-on offer document to the Board through their merchant banker for review.

Following SEBI’s observations, the final follow-on offer document would then be filed with the regulator and recognized stock exchanges. At the time of submitting the draft document, the merchant banker would also be required to provide SEBI with a due diligence certificate.

Last week, SEBI also proposed that REITs and InvITs align their financial disclosures in offer documents with the reporting standards applicable to public issues and listing regulations.