In a significant move aimed at strengthening the operational framework for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), the Securities and Exchange Board of India (SEBI) has unveiled a set of proposals designed to boost business flexibility while ensuring investor protection. These proposals, detailed in two consultation papers, reflect SEBI’s commitment to modernizing the investment landscape.
One of the key initiatives being considered is the introduction of interest rate derivatives, such as swaps, for REITs and Small and Medium REITs (SM REITs). This change would allow these entities to hedge against fluctuations in interest rates, helping to stabilize cash flows and manage risks associated with long-term infrastructure projects. By integrating these financial instruments, SEBI aims to enhance the resilience of REITs and InvITs in an ever-changing economic environment.
Moreover, the regulator plans to recognize fixed deposits as cash equivalents in the leverage calculations for both REITs and InvITs. This clarification is anticipated to improve financial management practices within these entities, alongside refined credit rating requirements for borrowings that aim to bolster overall financial health.
To further facilitate the management of holdings, SEBI proposes allowing the transfer of locked-in units among sponsors and their affiliates, similar to the existing rules for promoters of listed companies. This initiative is designed to ensure that sponsors maintain "skin in the game," while granting them greater operational flexibility.
In terms of governance, SEBI plans to amend the quarterly reporting norms for InvITs, mandating that these results reflect the performance of the InvITs themselves, thus aligning them more closely with REIT regulations. Additionally, the proposed changes would allow for a combination of independent and non-executive directors in the Nomination and Remuneration Committees (NRCs) of REIT and InvIT managers, mirroring governance structures seen in listed companies.
The proposals also aim to define "Common Infrastructure" to include essential facilities like power plants and water treatment systems that can support multiple REIT assets independently of specific project sites. This definition is expected to enhance operational efficiency across various projects.
Furthermore, the introduction of liquid mutual fund investments for REITs could provide additional diversification options for managing cash flows, adding another layer of strategic financial planning.
SEBI is currently inviting public feedback on these proposed changes, with a deadline set for November 13.
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