SEBI released the Draft SEBI (Infrastructure Investment Trusts) Regulations, 2014 on 17 July, 2014. This follows the consultation paper on InvITs which SEBI had released on 20 December, 2013, and incorporates the provisions delineated under the Finance Bill 2014-15, which confers pass-through taxation status on InvITs. The Draft Regulations provide for two broad categories of InvITs: those that seek to invest at least 80% of the value of the assets in completed and revenue generating projects, and those that propose to invest over 10% of the value of their assets in under construction projects. In the former route, money can be raised only through public issue of units with minimum trading lot of Rs. 5 lakhs. In the latter route, funds can be raised only through private placement from Qualified Institutional Buyers and body corporate, and the trading lot shall be Rs. 1 crore. Such InvITs shall invest in not less than one completed and revenue generating project and not less than one pre-Commercial Operations Date project. While the Draft Regulations have provided for an elaborate framework that would help attract long-term investment for the infrastructure sector, there are certain issues that warrant attention. A very wide definition of “associate” may have the unintended consequence of precluding certain otherwise eligible entities from becoming trustees of the InvIT, given that a trustee cannot be an “associate” of the sponsor or investment manager. Similarly, the prescribed net worth requirement of Rs. 10 crore for a sponsor appears to be disproportionately high and would hinder entities from becoming sponsors of the InvIT. Further, listing has been made mandatory for both publicly offered and privately placed InvITs. However, there is a one-year lock-in requirement with respect to units held by non-sponsors. This may hinder free transferability of the units and impact market liquidity. The use of this as a separate set of regulations instead of as a sub-category in alternative investment fund regulations is not clear.

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Date:September 28, 2015