India approves creation of infra investment trusts

The Securities and Exchange Board of India (SEBI) has approved the creation of infrastructure investment trusts (InvITs) for the first time, according to a statement on the regulator’s website.

The regulator says InvITs should be set up as trusts and registered with SEBI, the statement said.

InvITs are supposed to invest in infrastructure projects directly or through special purpose vehicles (SPVs). “In the case of PPP projects, such investments shall only be through SPVs,” it added.

The regulator also says that an InvIT should hold, or propose to hold, a controlling interest and more than 50 percent of the equity share capital or interest in the underlying SPV, except where this is not possible because of a regulatory requirement emanating from the concession agreement.

“In such cases, [the] sponsor shall enter into an agreement with the InvIT, to ensure that no decision taken by the sponsor, including voting decisions with respect to the SPV, are against the interest of the InvIT and its unit holders,” it added.

Sponsors of an InvIT shall collectively hold no less than 25 percent of the total units of the InvIT on a post issue basis for a period of at least three years, except for those cases where a regulatory requirement or concession agreement requires the sponsor to hold a certain minimum percent in the underlying SPV, according to the statement.

The proposed holding of an InvIT in the underlying assets should not be less than 5 billion rupees ($82.14 million), and the offer size of the InvIT should not be less than 2.5 billion rupees ($41.07 million) at the time of initial offer of units, it said.

The aggregate consolidated borrowing of the InvIT and the underlying SPVs shall never exceed 49 percent of the value of InvIT assets, the regulator said.

Further, “for any borrowing exceeding 25 percent of the value of InvIT assets, credit rating and unit holders’ approval is required,” it added.

A publicly offered InvIT may invest the remaining 20 percent in under-construction infrastructure projects and other permissible investments, but the investments in under construction infrastructure projects shall not be more than 10 percent of the value of the assets, it said.