Sebi changes preferential allotment rules to REITs and InvITs The pricing formula for a preferential allocation is currently the VWAP over the last two weeks or 26 weeks.
Sebi updated Monday the pricing norms to allow preferential allotment by Infrastructure Investment Trusts and Real Estate Investment Trusts.
The new pricing framework would allow units to be allotted under preferential issues at the Volume-Weighted average price (VWAP), which is the sum of the weekly highs and lows over 90 trading days. Or ten trading days.
The pricing formula for a preferential allocation is currently the VWAP over the last two weeks or 26 weeks.
According to two circulars, the preferential issue of units for institutional investors not exceeding five units must be done at a price no less than the VWAP of the related units on a stock exchange before the relevant date.
According to the regulator, the preferential issuer of units will not be issued to anyone who sold or transferred units of the issuer in the 90 trading days prior. The limit at the moment is six months.
All sponsors will be ineligible to receive units on a preferential basis if any sponsor person has sold or transferred units of the issuer within the 90 days preceding the relevant date.
The restriction will not apply to sponsors if the REIT/InvIT from them acquires any asset, and the preferential issuing of units is being made for that sponsor as full consideration for such acquisition.
The regulator also defined commonly traded units as units of REIT and InvIT. These units are those in which the traded turnover of a stock exchange over the 240 days preceding the relevant date was at least 10% of the total number of issued or outstanding.
The REIT or InvIT would need to apply for listing the units after allotment. Listings would take place within two working days of distribution. The current time limit is seven days.
Suppose the units are not listed by the REITs/InvITs within the time specified. In that case, the money received will be refunded via verifiable means within four working days of the date of allotment.
Suppose the money is not returned within the time specified. In that case, the REIT/InvIT manager of such units and its director or partner will be jointly liable for repaying the money at an annual interest rate of 15% starting the fourth working day.
In November 2019, the regulator issued guidelines regarding the preferential issue and institutional placement of units by REITs or InvITs.
While REITs (or InvITs) are relatively new investment instruments in India, they are prevalent in global markets.
A REIT is a portfolio that includes tangible commercial assets. However, InvITs are a portfolio that provides for infrastructure assets like highways and power transmission assets.