SEBI, on May 11, 2016, issued procedural guidelines for public issue of units by infrastructure investment trusts (InvITs). The circular applies to InvITs that invest a minimum of 80% of their assets in completed and revenue generating projects, as only these are permitted to undertake public issue of units under the SEBI (Infrastructure Investment Trusts) Regulations, 2014. As the regulations already deal with the appointment of merchant bankers, filing of offer documents, public consultation requirements, etc., the circular merely provides additional clarity on the procedure.
Further, the circular discusses certain other requirements which the regulations are silent on, such as allocation limits and price determination. In relation to allocation limits, investment by institutional investors has been limited to a maximum of 75% with the remainder being allocated to other investors. In case of under-subscription in any category, the unsubscribed portion may be reallocated to other categories. In regard to the issue price, InvITs may set a fixed price in consultation with the merchant banker or determine the price through the book building process.
SEBI’s circular comes at the right time as two entities have successfully obtained certificates of registration from SEBI. However, the larger concern of increasing the number of active InvITs remains. This may be addressed by a consultation paper that was discussed in SEBI’s most recent board meeting, which proposes changes to the regime and may smoothen the process of registration and subsequent issue of units. The press release states that SEBI proposes to permit InvITs to invest in two-level SPV structures, reduce mandatory minimum sponsor holding from 25% to 10%, increase permissible number of sponsors, etc. Any further relaxation in the somewhat rigid requirements would enable better use of these vehicles and further investments in the infrastructure sector, which India needs.
