Summary: Public listing of an InvIT requires preparation extending beyond completion of the issue process to ensure that its unit structure, offer-document disclosures, supporting records and continuing compliance systems are ready for public-market requirements. The compliance team must first reconcile unit capital, existing unitholding, depository records and outstanding rights and examine applicable requirements concerning public unitholding, offer size, sponsor contribution and lock-in. For conversion of a privately listed InvIT, particular attention must be given to units proposed for offer for sale, including applicable encumbrance, lock-in and selling-unitholder requirements. The offer document must then be supported by complete and verified information. Merchant bankers and advisers require reliable records concerning concession periods, operating data, acquisitions, distributions, projections and other material matters, while material developments arising during the offer process must be assessed for necessary updates. Post-listing systems should be established before listing to support periodic and continuous disclosures relating to financial results, valuations, distributions, unitholding, related-party transactions, governance and borrowings. Investor grievance arrangements, website disclosures, records and corporate-action procedures must likewise be operational. Finally, compliance calendars and policies should be tested through practical trial runs to identify delays or weaknesses in information flows, escalation and approvals. Public-listing readiness therefore depends on effective coordination among compliance, finance, legal, operations, project managers, SPVs, the investment manager, its board and the trustee.
From Offer Document to Listing: Completing Public-Listing Readiness
Introduction:
Public listing of an InvIT requires much more than completing the issue process. Before filing the offer document, the InvIT must ensure that its unit structure, disclosures, supporting records and post-listing compliance systems are ready for public-market requirements.
At this stage, the compliance team plays an important role in bringing together information from different functions, verifying the disclosures proposed to be made and ensuring that the InvIT is prepared not only to complete the public issue but also to meet its continuing obligations after listing.
This article discusses the key areas that require attention at this stage, including preparation of the unit structure and public-issue arrangements, verification of the offer document, setting up post-listing compliance systems and testing those systems before filing
1. Prepare the unit structure and public-issue arrangements
Once the underlying legal, financial and governance arrangements have been examined, the compliance team must finalise the matters relating to units and the public issue. This requires reconciliation of unit capital, existing unitholding, depository records and outstanding rights. The proposed issue must also be examined against the applicable conditions concerning public unitholding, offer size, sponsor contribution and lock-in.
For a privately listed InvIT undergoing conversion, the existing unit structure requires particular attention. Under paragraph 14.4 of SEBI’s Master Circular, units proposed to be offered for sale by an existing unitholder must be free from encumbrance or lock-in when the draft offer document is filed. The framework also prescribes restrictions on participation in the issue by specified selling unitholders. For example, where an existing investor proposes to offer its units for sale but those units are pledged in favour of a lender, the compliance team must identify the encumbrance and coordinate the necessary action before filing.
2. Ensure that the offer document is supported by verified information
Under Regulation 10(5) of the InvIT Regulations, the investment manager is required to appoint merchant bankers for the public issue. Chapter 2 of the Master Circular further prescribes the public-issue process and requires the lead merchant banker to submit due-diligence certificates at specified stages. The compliance team must facilitate this exercise by ensuring that information supplied to the merchant bankers and other advisers is accurate, complete and supported by records.
For example, if the offer document contains information regarding the remaining concession period of a road project, the relevant dates must be verified against the concession agreement and subsequent amendments. Similarly, operating data such as traffic, revenue, occupancy or project availability must be reconciled with the records maintained by the underlying entities. Statements relating to acquisitions, future growth, distributions and other material matters must also be supported by the relevant documents and information.
For conversion transactions, Chapter 14 additionally requires disclosures concerning historical distributions and a comparison of actual performance with projections made in the original placement memorandum.
The compliance team must therefore coordinate with the relevant departments to collect, reconcile and verify this information.
The verification exercise should continue throughout the offer process. Any material developments occurring between filing, regulatory review, launch, allotment and listing must be examined to determine whether updates to the offer document or other action are required.
3. Establish post-listing compliance before the listing date
The final stage is to ensure that the InvIT is capable of meeting the obligations that will apply after it becomes publicly listed. Regulation 23, read with Chapter 4 of SEBI’s Master Circular, requires the InvIT to undertake specified periodic and continuous disclosures. The compliance team must therefore establish the necessary reporting arrangements before listing rather than creating them after the issue is completed. These arrangements should cover financial results, annual and half-yearly reports, valuation reports, distributions, unitholding patterns, related-party disclosures, governance reports, borrowing-related disclosures and other applicable filings.
For example, the financial-reporting calendar must allow sufficient time for the finance team to prepare results, auditors to complete their review, the relevant committee and board to consider the information and the compliance team to make the stock-exchange filing. Similarly, the valuation calendar must account for information being collected from the SPVs, the valuer completing the valuation and the investment manager considering the report within the applicable timeline.
Governance-related reporting must also be supported by appropriate records.
For instance, the review of compliance reports by the board of the investment manager under Regulation 26H(3) requires information regarding compliance with applicable laws to be collected from the relevant functions and underlying entities. The compliance team should therefore establish clear reporting responsibilities and internal timelines for each requirement.
Investor-related arrangements must also be made operational, including the registrar and transfer agent, investor grievance mechanism, website disclosures, maintenance of records and procedures relating to distributions and other corporate actions.
For a privately listed InvIT, the team must identify which existing procedures can continue after conversion and which need modification to meet the public InvIT requirements.
For an InvIT undertaking its first public listing, the relevant systems must be established from the beginning.
4. Test the compliance systems before filing
Merely preparing a compliance calendar or adopting policies does not establish whether the systems will function effectively. A trial run of the proposed compliance processes for one or two reporting periods can help identify practical difficulties.
For example, the team can test whether information required for financial reporting reaches the investment manager on time, whether project-level developments are escalated promptly and whether the necessary approvals can be obtained within the prescribed deadlines.
Before approving the offer document, the investment manager and trustee should have a clear view of the compliance readiness of the InvIT, including completed actions, unresolved issues, pending consents and matters requiring further action before listing. This assessment should establish whether the InvIT is ready not only to complete the public issue but also to meet its continuing obligations after listing.
Conclusion
Preparing an InvIT for public listing involves several compliance requirements, but their successful implementation depends on much more than the efforts of the compliance team alone. While the team is responsible for identifying requirements, coordinating implementation and monitoring compliance, successful preparation depends on effective coordination with finance, legal, operations, project managers, SPVs, the investment manager, its board and the trustee.
There is also an important distinction between the public-listing process and the preparation required before it begins. Although the InvIT Regulations and SEBI circulars prescribe the eligibility conditions, approvals, disclosures and procedures for public listing, they do not provide a ready-made approach to identifying and addressing gaps within an individual InvIT. This requires the compliance team’s knowledge of the regulatory framework, understanding of the InvIT’s operations and proactive approach to anticipating issues, resolving them early and establishing appropriate systems.
Thus, while the law prescribes the process for public listing, the InvIT’s readiness depends largely on the knowledge, coordination and proactiveness of its compliance team.
The article is written by CS Rutuja M Umadikar
