Sebi to amend investment manager eligibility norms for InvITs

Capital market regulator Sebi is planning to amend its investment manager eligibility norms for Infrastructure Investment Trusts and also permit fast track issuance of units to existing investors in REITs and InvITs.

The proposed changes in the eligibility norms will help a mega offering worth an estimated Rs 20,000 crore by the National Highways Authority of India (NHAI), which is in the process of setting up an Infrastructure Investment Trust (InvIT) to monetise its completed public-funded national highways.

A proposal to amend the Sebi regulations for Real Estate and Infrastructure Investment Trusts (REITs/InvITs) will be discussed by the regulator's board at its meeting later this month to revise eligibility conditions for investment managers in InvITs and for streamlining the process of rights issue of units, officials said.

The InvIT regulations require the investment manager to have at least 5 years of experience in fund management or advisory services or development in the infrastructure sector. Besides, the investment manager needs to have at least two employees, each with five years of experience in the infrastructure sector.

However, the Securities and Exchange Board of India (Sebi) has been receiving representations from the industry and the market participants for considering alternative measures for relevant experience of the investment manager and considering the experience of employees or directors for meeting the experience criteria.

In one such representation, NHAI has told the regulator that it is considering to set up an InvIT for monetising its completed public-funded national highways and it has proposed to set up a new company to act as the investment manager for the proposed InvIT.

The NHAI has proposed that this new company would be headed by a board comprising 4-5 members, each having an experience of at least 15-20 years in fund management or development of infrastructure or highway activities.

The new company, which would act as the investment manager, is also proposed to have five managerial-level employees, each having at least 5 years of experience in development of infrastructure or highways.

While the intent of Sebi regulations prescribing experience requirement was to ensure that the investment manager had requisite expertise, the present norms do not permit a new entity even if it had sufficient number of experienced personnel to meet the regulatory intent, the officials said.

Accordingly, Sebi has proposed that an alternative measure of the experience can be considered which can be defined in terms of multiple of the combined experience of the directors, partners and employees of the investment manager.

While the combined experience requirement of the investment manager (IM) currently stands at 15 years (5 years for the IM and 5 years each for 2 employees), Sebi is proposing that the alternative measure can be made stricter at two times of the current combined requirement at 30 years to be met by directors/partners/employees having individual experience of at least 5 years.

"This is expected to enable people with expertise in the relevant areas to be able to set up a new entity to act as IM to an InvIT and leverage such expertise in management of the InvIT," an official said.

On fast track rights issue, the official said the current regulations specify that any follow-on offer or rights issue can be made by an REIT or InvIT within a period of one year from the date of issuance of observations by Sebi.

However, listed companies are allowed to raise capital through rights issue without the requirement of obtaining Sebi's observations if they are in compliance with the continuous listing and disclosure requirements and certain other conditions.

On receipt of representations from market participants for allowing similar facility to REITs and InvITs, Sebi has now decided to allow them to launch similar fast track rights issue of units, provided they satisfy the registration conditions and no regulatory action has been imposed on them in the three receding years.