Sebi seeks to lure foreign capital to Indian markets, issues draft norms for REITs

Oct 10 2013, 20:14 IST
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Issuing draft norms for REITs, Sebi said the evolution of such investment vehicles is Issuing draft norms for REITs, Sebi said the evolution of such investment vehicles is "crucial". AP
SummarySebi proposed listing of REITs, a popular instrument for raising funds in the realty sector.

float in the units.

The regulator has sought public comments on draft REIT Regulations by October 31, 2013.

The draft norms comes as the Indian real state sector witnessed rapid growth in recent years underlined by robust economic growth in the country.

The growing scale of operations of the corporate sector has increased the demand for commercial buildings and space including modern offices, warehouses, shopping and conference centres.

"For such rapidly growing industry, it is crucial that investment vehicles such as (REITs) evolve in the country," Sebi said in a draft paper.

Globally, framework for REIT exists in several countries including the US, the UK, Australia, Singapore, Japan and France.

In line with the nature of the REIT to invest primarily in completed revenue generating properties, "it has been mandated that at least 90 per cent of the value of the REIT assets shall be in completed revenue generating properties."

"In order to provide flexibility, it has been allowed to invest the remaining 10 per cent in other assets as specified in the proposed Regulations," it added.

Sebi said that REITs would be allowed to invest in the properties directly or through special purpose vehicles (SPVs), wherein such SPVs hold not at least 90 per cent of their assets directly in such properties.

However, in such cases, it has been mandated that REIT would have control over the SPV so that the interest of the investors are not jeopardised.

The REIT would not invest in vacant land or agricultural land or mortgages other than mortgage backed securities. Further, the REIT woudl only invest in assets based in India.

"Investment up to 100 per cent of the corpus of REIT has been permitted in one project subject to the condition that minimum size of such asset is not less than Rs 1,000 crore," Sebi said.

In a bid to safeguard the interests of the investors, several prerogatives like right to remove the manager, auditor, principal valuer, seek delisting of units, apply to Sebi for change in trustee among others have been provided them to empower them.

"...approval of investors has been made mandatory in special cases such as certain related party transactions, any transaction with value exceeding 15 per cent of the REIT assets, borrowing exceeding 25 per cent, change in manager/ sponsor, change in investment strategy, delisting of units, etc," Sebi said.

In order to ensure that a related party does not influence the decision, Sebi said that any person who is a party

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