SEBI Consultation paper on Infrastructure Investment Trusts

SEBI is inviting Public comments on the consultative paper on the aforesaid proposals as laid out in the Document attached here.

Comments may be forwarded by email to Ms. Nila Salil Khanolkar, Assistant General Manager ( or Mr. Naveen Gupta, Assistant Manager ( latest by January 20, 2014.

The Comments should be given in the following format:

a. Name of entity/ person/ intermediary
b. Comments/ suggestions on the above proposals
c. Any other suggestions/comments

The Consultation paper is available for download. SEBI Consultation paper on Infrastructure Investment Trusts

Extract from the Consultation Paper 

1. Infrastructure is the cornerstone of development of any country. According to the 12th Five Year Plan, India requires an investment in Infrastructure sector of around Rs. 65 lakh crores over the duration of 2012-2017. A significant boost is required to the infrastructure sector in the country to help India achieve its target for the 12th Five Year Plan.

2. As the capital market regulator, SEBI actively encourages setting of varied frameworks for investment in infrastructure sector so that lack of structures for financing of infrastructure is not an impediment for the development of the sector. Steps taken by SEBI in the recent past towards this end include providing framework for various structures such as Infrastructure Debt Fund (IDF-MF) under SEBI (Mutual Funds) Regulations, 1996, Category I AIF Infrastructure Fund under SEBI (Alternative Investment Funds) Regulations, 2012, etc.

3. In addition, SEBI has provided special concessions for companies in infrastructure sector for the purpose of issue and listing of securities under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. SEBI has also simplified the procedure for public issue of bonds which has facilitated bond offerings of several infrastructure companies. Additionally, SEBI also has a framework for public offer and listing of securitised debt instruments under SEBI (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008.

4. SEBI has received various suggestions for coming out with a framework for ˜Infrastructure Investment Trusts˜(InvITs) in the country. Based on suggestions received, SEBI is examining a structure which would provide an additional framework for investment in infrastructure in the country.

5. Globally as well, it has been observed that several financing/refinancing structures exist which have provided a boost to infrastructure sector/ specific sub-sectors including business trust model in Singapore and Hong Kong, Master Limited Partnerships in the USA, various securitisation structures, etc.

6. The structure for InvITs is broadly proposed to address one or more of the following concerns:

a. Given the challenging phase of infrastructure in the country today, InvITs are proposed to provide a suitable structure for financing/refinancing of infrastructure projects in the country.

b. Several existing infrastructure projects which are under development in India are delayed and ˜stressed™ on account of varied reasons including increasing debt finance costs, lack of/locked up equity of private investors in projects precludes them from an interest in undertaking new projects, lack of international finance flowing to Indian infrastructure projects, project implementation delays caused by various factors like global economic slowdown, cost overruns, inability of concessionaire to meet funding
requirements on time, etc. InvITs, as an investment vehicle, may aid:

i. To provide wider and long-term re-finance for existing infrastructure projects
ii. To free up current developer capital for reinvestment into new infrastructure projects
iii. To refinance/takeout existing high cost debt with long-term low-cost capital and help banks free up/reduce loan exposure, and thereby create bank headroom for new funding requirements

c. There are several infrastructure companies whose funds are locked up in completed/substantially completed infrastructure projects which can otherwise be used for furthering infrastructure development in the country. InvITs may be an enabling vehicle for refinancing such assets as well as creating an investment option which may otherwise not be possible for smaller investors.

d. InvITs are proposed to be vehicles allowing for adding of projects in future in the same vehicle so that investors can benefit from diversification as well as growth in their portfolio.

e. InvITs are proposed to be suitable vehicles for attracting international finance into Indian infrastructure sector.

f. InvITs are proposed to enable the investors to hold a diversified portfolio of infrastructure assets.

g. InvITs are also proposed to bring higher standards of governance into infrastructure development and management and distribution of income from assets so as to attract investor interest

7. In line with the above, SEBI is exploring appropriate frameworks for introducing InvITs in the country. SEBI has received various proposals for such InvITs including bringing InvITs as a Mutual Fund, having a separate set of Regulations for InvIT, bringing InvITs under REIT framework, etc.

8. With respect to REITs, SEBI had earlier explored frameworks such as Real Estate Mutual Funds (REMF), guidelines for which were issued in 2008. However, no REMF scheme has been launched till now. Subsequently, SEBI had placed a consultative paper along with draft REIT Regulations on SEBI website for public comments on October 10, 2013. Several comments were received on the consultative paper that Infrastructure assets may be included as a part of the REIT framework. However, bringing Infrastructure Investment Trusts under REIT framework may not be entirely suitable since:

a. The inherent nature of infrastructure assets is different from real estate assets. Further, every sub-sector has its own unique characteristics. Infrastructure assets, unlike real estate assets, have unique characteristics such as finite life in some cases (At the end of concession period, assets may get transferred back to government), only right to receive cash flows and no asset ownership (E.g. in cases of roads, the ownership of the road stays with the government and the developer only has right to receive cash flows), involvement of various regulatory authorities, various aspects of concession agreement in case of PPP projects, etc.

b. Infrastructure sector requires different types of disclosures, different restrictions on underlying assets, different leverage levels, etc. as compared to REITs considering the difference between underlying nature of the infrastructure assets and real estate assets for which a separate framework may be more desirable.

c. REIT is essentially a framework for completed and revenue generating assets. Including InvITs under REIT framework shall mean excluding other types of assets that may be added to the framework.

d. The International Advisory Board of SEBI has also recommended that framework for Infrastructure Investment Trusts may be kept separate from REITs.

9. Therefore, it is proposed that the InvITs may be treated as a separate framework as compared to REITs. The other proposals are enumerated as under, including their pros and cons for better comprehension of the proposals.

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