India market regulator Sebi proposes easier norms for REITs

Photo: Reuters

The Securities and Exchange Board of India (Sebi) on Monday proposed easier norms for real estate investment trusts (REITs) and said that such entities do not need to buy or sell assets at prices suggested by independent valuers while undertaking related-party deals.

At present, for related-party transactions, REITs are required to purchase or sell assets at a price that is not greater or less than the average of two independent valuations.

In order to allow more flexibility, the regulator proposed that REITs can purchase properties at any value as long as the price is not greater than 110% of the average of the two independent valuations. And REITs can sell a property at any price as long as the value is not less than 90% of the average of the two independent valuations, Sebi said in a consultation paper.

Although Sebi cleared the launch of REITs in 2014, unfavourable tax structures and stringent holding norms have so far prevented companies from floating such trusts.

Sebi, in its consultation paper, also proposed to relax the control and holding structure of REITs. At present, Sebi norms classify a special purpose vehicle (SPV) as a company or limited liability partnership that holds not less than 80% of its assets directly in properties and does not invest in other SPVs.

Sebi proposes to allow REITs to invest in holding companies which have investments in other SPVs, which subsequently hold the real estate assets.

“Real estate assets are usually held through multiple layers of investments… Therefore, the requirement of having all assets under one vehicle or under multiple vehicles at the same horizontal level for listing through a REIT would involve significant restructuring of existing holdings. Further, such restructuring of assets to single-level SPV may involve significant costs,” Sebi explained.

The capital markets watchdog also expanded the definition of real estate and property to include more assets in which a REIT can invest.

“Assets such as hotels, hospitals or other sub-sectors which are included under the definition of infrastructure as per the ministry of finance notification should be included within the scope of real estate or property, so long as they qualify as completed rent-generating properties,” Sebi proposed.

Additionally, Sebi proposed to relax the requirement of a minimum number of investors every REIT needs to have while going public. At present, the norms require that the units proposed to be offered to the public will not be less than 25% of total outstanding units and the number of unit holders forming part of the public has to be at least 200 at all times.

The regulator suggested that the requirement of minimum offer to public and minimum public holding of the outstanding units will be linked with the requirement of public offer of 25% or 10%, as stipulated under the Securities Contracts (Regulation) Rules, 1957, and REITs will be required to have a minimum of 200 public investors only at the time of initial offer.

Sebi also proposed to allow REITs to have five sponsors, as against the current requirement of three.

Sebi has sought public comments on the proposals by 7 August 2016.

Also read:

India: SEBI may scrap listing platform for start-ups

India: Sebi moots easier norms for REITs, relocation  of foreign fund managers

This story was first published on Livemint

Singapore Reporter/s

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Following vacancies can be applied for (only in Singapore).   

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.