SEBI New Proposals Seek To Make It Easier For SM REITs To Operate
The regulator has also put forth proposals to align the rules for SM REITs with existing regulations for larger REITs.
The Securities and Exchange Board of India proposed on Wednesday new rules to make it easier for small and medium real estate investment trusts to operate and to share important information with investors.
An REIT must conduct its initial offer of units exclusively through a public issue. The compliance requirements for ownership of assets can be fulfilled at any point before the unit allotment, as long as there is a binding agreement in place, the capital markets regulator said.
This must be disclosed in the offer documents sent to SEBI and stock exchanges, according to the consultation paper that seeks suggestions from the public on the proposals related to review of regulatory framework for the SM REITs.
The initial offer must occur within a year of receiving SEBI's observations. If it does not, a new draft of the key information documents will need to be submitted. In the event of oversubscription, no more units can be allocated than what was offered, and any extra units will be distributed proportionately, while ensuring that minimum bid lots are respected.
The pricing for the units will be determined through a book-building process or other methods established by SEBI. The minimum subscription required will be at least 90% of the new issue size.
For the general purposes outlined in the offer, this cannot exceed 10% of the total amount raised. Existing unit holders, aside from the investment manager, must retain their units for at least one year following the listing.
The investment manager is required to deposit a specific percentage of post-offer holdings in a cash escrow account before the offer opens, ensuring transparency in the allotment process.
The regulator has also put forth proposals to align the rules for SM REITs with existing regulations for larger REITs.
One key proposal involves handling unpaid distributions, requiring any unclaimed amounts to be transferred to the Investor Protection and Education Fund, ensuring investor safety. Additionally, investment managers must regularly monitor compliance with investment conditions, with a six-month period to rectify any breaches due to market changes.
The proposals also clarify that borrowings should not exceed 49% of the REIT's asset value and specify that cash and cash equivalents, including overnight mutual fund investments, should not be counted towards this limit.
Under the new proposals, the scheme offer documents will be split into two parts. The first part, called the key information of the trust, will include crucial details about the SM REIT itself, such as the background of the investment manager, the trustee, and other essential information related to the trust.
The second part, known as the key information of the scheme, will focus on specific investment schemes, detailing the assets involved and the particular strategies being employed.
The proposals are open for public feedback till Nov. 16.
