Sebi comes out with guidelines for encumbrance on REITs, InvITs

Markets regulator Sebi on Monday put in place a framework for invocation as well as encumbrance on units of real estate and infrastructure investment trusts.

In a separate circular, Sebi has also extended the regulatory due date for filing and compliance for real estate investment trusts (REITs) and infrastructure investment trusts (InVITs) for the financial year ending March 31, by one month over and above the timeline in the wake of coronavirus pandemic.

In view of developments surrounding the spread of COVID-19, "a need for temporary relaxation in compliance requirements for REIT and InvIT is warranted", it added.

With regard to encumbrance, Sebi said entities required to hold units of REITs and InvITs may create encumbrance on such units during the mandatory holding period wherein encumbrance will include pledge, lien, negative lien, non-disposal undertaking or any other covenant, transaction, condition or arrangement in the nature of encumbrance.

This is subject to the conditions that for creation and invocation of encumbrance are also included in the agreement executed for the purpose of creation of such encumbrance, the Securities and Exchange Board of India (Sebi) said in two circulars.

In respect of conditions for invocation during the mandatory holding period, Sebi said such encumbrance will not be permitted to be invoked during the holding period unless the person invoking the encumbrance — directly or through any trustee or agent acting in his behalf — will get itself or its nominee to become re-designated sponsor.

This condition will not be applicable in case the person invoking such encumbrance is already a member of sponsor group.

With respect of obligations of entity creating encumbrance, Sebi said sponsor and sponsor group creating encumbrance on units held by them, will have to provide details of the encumbrance to the manager of the REIT or InvIT within two working days from the date of creation of such encumbrance in a specified format.

In case of any change in the information pursuant to release or invocation of encumbrance, or in any other manner, need to be informed to the manager of the REIT or InvIT within two working days from the date of such event.

The REIT and InvIT within two working days from the receipt of details will have to disclose such information to every stock exchange where units of such trusts are listed.

The markets watchdog had first notified REIT and InvIT Regulations in 2014, allowing setting up and listing of such trusts which are popular in some advanced markets.