Preferential allotment rules for REITs and InvITs changed by SEBI

30 Aug 2022 , 08:05 AM

The price guidelines for preferential unit allocation by Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) were updated by SEBI on Monday.

Under the new framework, the volume-weighted average price (VWAP) of weekly highs and lows for 90 trading days or 10 trading days, whichever is higher, would constitute the pricing mechanism for allotment of units under preferential issuance.

The VWAP of the most recent two weeks or the most recent 26 weeks, whichever is higher, now serves as the price mechanism in a preferential allotment.

According to two different circulars, the preferential issue of units to “institutional investors” with a maximum of five must be issued at a price that is at least equal to the VWAP of the associated units quoted on the stock exchange 10 trading days prior to the relevant date.

The regulator stated that no person who sold or transferred any units of the issuer during the 90 trading days prior to the relevant date would be eligible for a preferential issue of units. The duration cap is currently set at six months.

All sponsors would be ineligible for the allocation of units on a preferential basis if any sponsor member had sold or transferred any of their issuer-owned shares in the 90 days prior to the relevant date.

The prohibition would not, however, apply to a sponsor if the REIT or InvIT were to purchase an asset from that sponsor and preferred units were being issued to that sponsor as full payment for the purchase of that asset.

The units of REITs or InvITs are included in the regulator’s definition of commonly traded units. These are units in which at least 10% of the issued and outstanding units were traded on a stock market during the 240 trading days prior to the relevant date.

Following allotment, the REIT or InvIT in question must submit an application for the units to be listed, and within two working days of the date of allotted, the units will be listed. The time frame is seven days at the moment.

Guidelines for preferential offering as well as institutional placement of units by REITs and InvITs were released by the regulator in November 2019.

Although they are relatively new investment vehicles in the Indian context, REITs and InvITs are hugely popular in international markets.

While an InvIT consists of a portfolio of infrastructure assets like motorways and electricity transmission facilities, a REIT consists of a portfolio of commercial real estate, the majority of which is already leased out.

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