Market regulator SEBI has placed a limit on investments by strategic investors into real estate investment trusts and infrastructure investment trusts.
Strategic investor can invest, either jointly or severally, “not less than 5 percent and not more than 25 percent of the total offer size,” the Securities and Exchange Board of India said in a circular posted on its website.
There was no upper cap to these investments earlier, Bhairav Dalal, partner - tax financial services at consulting firm PwC told BloombergQuint. “The move by the SEBI seems to be an attempt to ensure that institutional investors do not corner a large portion of these financial instruments,” he added.
Strategic investors are similar to the qualified institutional buyers that participate in India’s financial markets, and include entities like scheduled commercial banks and foreign portfolio investors.
The markets regulator has also put in place operational norms for the participation of these strategic investors.
“The subscription price per unit, payable by the strategic investor would be set out in the unit subscription agreement and the entire subscription price would be deposited in a special escrow account prior to opening of the public issue,” the SEBI said.
This price, the regulator said, should not be less than the issue price determined in the public issue. In the event that the public issue price is higher, the strategic investor will have to bring in the additional amount within two working days of the determination of the price. However, if the public issue price is lower, the excess amount will not be refunded to the strategic investor, SEBI said.
Besides, the unit subscription agreement made by the strategic investors cannot be terminated except if the issue fails to collect the minimum subscription.
SEBI had notified the regulations for REITs and InvITs in 2014, allowing the setting up and listing of such trusts, which are popular in some advanced markets.
So far, though, only two InvITs–IRB InvIT Fund and Indiagrid Trust–have been listed on stock exchanges and not a single REIT has been listed.
“A lot of investors are viewing REITs very positively. The instrument will give a lot of investors who have the ability to invest, another option. A lot of institutional investors have allocations for such investments, but currently cannot make them because of lack of options,” Dalal said.
He believes that the delay in listing of REITs is on account of uncertainty at the sponsor level. “The first issuance always takes a little time,” he said. “Once the first one is out of the way, the second one should follow quickly.”