The Securities and Exchange Board of India seeks to make sponsors of InvITs and REITs more accountable by proposing that at least one sponsor remain invested in them permanently.
In a consultation paper on Thursday, the regulator said that while sponsors of REITs/InvITs are required to hold 15% of the capital for a period of three years from the date of listing, there is no mandatory unit holding requirement after three years.
The regulator pointed out that most sponsors had significant shareholding in investment managers (who manage day-to-day activities) and thus had a say in the financing decisions of the REITs/InvITs, especially debt financing.
Present norms allow raising debt to the tune of 49% of the value of assets for REITs and 79% for InvITs, and the regulator said the maturities of such debt usually exceed 10 years. Such key decisions are taken with a long-term view, and have a material impact on returns of investors.
Further, it has also sought to amend norms for declassification of sponsors, by allowing them to declassify subject to the induction of a new sponsor that meets the eligibility criteria, the holding requirement, and which has no stake in the investment manager.
Current norms allow sponsors to declassify after three years as long as the unit holding of the sponsor and its associates stands at below 10%. However, there is no rule mandating the induction of a sponsor in place of the exiting sponsor.
As a result, the market watchdog has sought the amendments to ensure alignment between sponsors and unit holders. It has sought comments on the same by March 8.