New Delhi, Sept. 25 -- The Securities and Exchange Board of India has redefined investor consent for real estate investment trusts and infrastructure investment trusts, and also changed investor eligibility for alternative investment funds.
The capital markets regulator also announced other significant changes for these asset classes following a board meeting on Thursday, such as allowing foreign entities to invest in REITs and InvITs through depository notes and allowing REITs to invest in remote common infrastructure.
Foreign investors otherwise invest in REITs and InvITs after registering with SEBI as a foreign portfolio investor (FPI) or foreign venture capital investor (FVCI). SEBI's amendment will allow them to invest indirectly through depository receipts without this registration, and in foreign-currency denominated DRs, which also protects them from currency fluctuations.
Here is a quick explainer on the changes for investors.
How has investor consent changed for REITs and InvITs?
Under REIT and InvIT regulations, certain matters need the approval of investors holding 75% of units.
Securing everyone's votes has become challenging because there may be several unitholders and many of them may be absent during the voting process.
Until now, votes of these absentee investors tilted the process in favour of the dissenting voices. For example, if 40 people vote for and 40 vote against, and 20 are absent, the count is taken as 40% (40 out of 100).
With the new change, the absentee investors won't be included in the total. So, in the above example the total will be 80, which would result in 50% approval (40 'for' votes out of the 80 who voted).
SEBI has been trying to make the investor-consent gathering process easier across asset classes. This July, it floated a consultation paper in this regard for AIFs, where the funds could choose how they would count investor consent after informing the unitholders beforehand through the private-placement memorandum. However, with AIFs, counting out the absentee voters is just one of the three options.
How has investor eligibility changed for AIFs?
The regulator has made it easier for funds to accredit investors by allowing managers of the alternative investment funds, asset management companies offering specialised investment funds (SIFs) and SEBI-registered portfolio managers to do so. Earlier, this had to be done through accreditation agencies, which were few in number.
SEBI has also allowed accreditation to be issued based on an investor's securities market exposure alone. Individuals, Hindu Undivided Families (HUFs), family trusts and proprietorships will need to hold a minimum of Rs 5 crore in securities. Corporate bodies and other trusts will need to hold a minimum Rs 20 crore.
Earlier, the accreditation was issued taking into consideration a person's net worth and/or annual income. Net-worth requirements for both categories were higher: the first needed at least Rs 5 crore and an annual income of Rs 1 crore or Rs Rs 7.5 crore; and the second Rs 50 crore.
Both of these have been longstanding industry demands.
What other significant changes did SEBI announce?
SEBI has allowed one more year for REITs and InvITs to meet minimum public unitholding (MPU) norms when unitholders want to exit following the exit of a sponsor.
For AIFs, the regulator has extended a protection given to funds set up as trusts to all funds having varied legal structures. Till now, a trust-led AIF's fund manager couldn't use the trust's assets to pay for their losses, damages or expenses. This protection now extends to all forms of AIFs, whether they are set up as a limited liability partnership (LLP) or a body corporate.
Published by HT Digital Content Services with permission from VC Circle.