Amended InvIT and REIT regulations to widen investor base: ICRA
The high credit ratings of InvITs also factored in the earlier regulatory cap of 49 per cent on the extent of leverage, which can be undertaken by an InvIT.
Real Estate

Amended InvIT and REIT regulations to widen investor base: ICRA

Recent amendments made to the regulations of infrastructure investment trusts (InvITs) and real-estate investment trusts (REITs) by the Securities and Exchange Board of India (SEBI) are likely to enable increased penetration of these financial instruments, according to a note by ICRA. 

The first amendment pertains to reduction of the minimum allotment lot for publicly issued InvITs from Rs 1 million to Rs 0.1 million, and for publicly issued REITs from Rs 0.2 million to Rs 50,000. Similarly, the minimum trading lot for InvITs is reduced from Rs 0.5 million to Rs 0.1 million, and for REITs from Rs 0.1 million to Rs 50,000. This is expected to increase the reach of retail investors in such instruments. Current investment avenues for retail investors in income-generating infrastructure and real-estate projects are limited owing to high minimum investment requirements for alternate investment funds (AIFs) and other pooled funds. Listed InvITs and REITs can be a transparent and stable investment option for retail investors because of the various regulatory stipulations.

The other key amendment is the increase in leverage limit for InvITs from the earlier 49 per cent of the InvIT’s assets to 70 per cent. This is subject to additional disclosure and compliance requirements, which include a minimum track record of six distributions on a continuous basis, and a credit rating of AAA or equivalent for the consolidated debt.

According to Shubham Jain, Vice-President and Group Head, Corporate Ratings, ICRA, “The high credit ratings of InvITs also factored in the earlier regulatory cap of 49 per cent on the extent of leverage, which can be undertaken by an InvIT. Now, with the increase in permitted leverage, that comfort will reduce. Nevertheless, the additional compliance requirements of maintenance of AAA rating and distribution track record does provide some comfort.”

At 70 per cent leverage, the total debt to net-worth ratio will increase to 2.33 times compared to 0.96 times at 49 per cent leverage levels. With higher leverage, the debt-service coverage ratio (DSCR), a key ratio to measure credit-worthiness, would also be significantly lower, assuming other things remain the same.

Further, SEBI has introduced a separate framework for privately placed unlisted InvITs, which limits the minimum investment by an investor at Rs 10 million, while leaving the number of investors, leverage and type of underlying assets at the discretion of the issuer and InvIT. After this amendment, private InvITs will be able to increase leverage, and take up more projects under construction depending on the investor’s risk appetite.    

Recent amendments made to the regulations of infrastructure investment trusts (InvITs) and real-estate investment trusts (REITs) by the Securities and Exchange Board of India (SEBI) are likely to enable increased penetration of these financial instruments, according to a note by ICRA. The first amendment pertains to reduction of the minimum allotment lot for publicly issued InvITs from Rs 1 million to Rs 0.1 million, and for publicly issued REITs from Rs 0.2 million to Rs 50,000. Similarly, the minimum trading lot for InvITs is reduced from Rs 0.5 million to Rs 0.1 million, and for REITs from Rs 0.1 million to Rs 50,000. This is expected to increase the reach of retail investors in such instruments. Current investment avenues for retail investors in income-generating infrastructure and real-estate projects are limited owing to high minimum investment requirements for alternate investment funds (AIFs) and other pooled funds. Listed InvITs and REITs can be a transparent and stable investment option for retail investors because of the various regulatory stipulations.The other key amendment is the increase in leverage limit for InvITs from the earlier 49 per cent of the InvIT’s assets to 70 per cent. This is subject to additional disclosure and compliance requirements, which include a minimum track record of six distributions on a continuous basis, and a credit rating of AAA or equivalent for the consolidated debt.According to Shubham Jain, Vice-President and Group Head, Corporate Ratings, ICRA, “The high credit ratings of InvITs also factored in the earlier regulatory cap of 49 per cent on the extent of leverage, which can be undertaken by an InvIT. Now, with the increase in permitted leverage, that comfort will reduce. Nevertheless, the additional compliance requirements of maintenance of AAA rating and distribution track record does provide some comfort.”At 70 per cent leverage, the total debt to net-worth ratio will increase to 2.33 times compared to 0.96 times at 49 per cent leverage levels. With higher leverage, the debt-service coverage ratio (DSCR), a key ratio to measure credit-worthiness, would also be significantly lower, assuming other things remain the same.Further, SEBI has introduced a separate framework for privately placed unlisted InvITs, which limits the minimum investment by an investor at Rs 10 million, while leaving the number of investors, leverage and type of underlying assets at the discretion of the issuer and InvIT. After this amendment, private InvITs will be able to increase leverage, and take up more projects under construction depending on the investor’s risk appetite.    

Next Story
Infrastructure Urban

USA Mortgage Rates Reach 6.95%

In July 2024, the average mortgage rate in the USA rose to 6.95%, marking a significant increase and impacting homebuyers nationwide. This upward trend in mortgage rates is attributed to several economic factors, including inflationary pressures, shifts in the Federal Reserve?s monetary policy, and broader market dynamics. The rise in mortgage rates presents challenges for potential homebuyers, making borrowing more expensive and potentially slowing down the housing market. Higher rates can lead to increased monthly payments for homeowners, reducing affordability and potentially deterring new ..

Next Story
Real Estate

Toronto Home Sales Increase 4.2%

In June 2024, home sales in Toronto experienced a notable rise, increasing by 4.2% compared to the previous month. This growth highlights a positive trend in the Toronto real estate market, indicating robust buyer activity and a favorable environment for sellers. Several factors contribute to this uptick, including attractive mortgage rates, strong demand for housing, and a stable economic backdrop. The Toronto Regional Real Estate Board (TRREB) reported this increase, pointing to heightened buyer confidence and competitive market conditions. Despite rising interest rates in other parts of Nor..

Next Story
Real Estate

New Zealand Boosts Home Construction

New Zealand is set to implement regulatory changes aimed at boosting home construction to address the nation's housing shortage. The government plans to streamline building consent processes, reduce construction costs, and increase the supply of affordable housing. This initiative is part of a broader strategy to make housing more accessible and alleviate the pressure on the housing market. Key elements of the regulatory overhaul include simplifying the approval process for new housing projects and reducing bureaucratic hurdles that often delay construction. By cutting red tape, the government..

Hi There!

Now get regular updates from CW Magazine on WhatsApp!

Click on link below, message us with a simple hi, and SAVE our number

You will have subscribed to our Construction News on Whatsapp! Enjoy

+91 81086 03000

Join us Telegram