The Securities and Exchange Board of India (SEBI) has recently issued a circular that addresses an important aspect of public ownership in Infrastructure Investment Trusts (InvITs). Specifically, it pertains to how these Trusts should meet their minimum public unitholding requirements. This comes under the purview of the SEBI (Infrastructure Investment Trusts) Regulations, 2014, which dictates that any listed InvIT should increase its public unitholding to at least 25% within three years from the date of listing of units pursuant to an initial offer.
How to Attain Minimum Public Unitholding as per SEBI Guidelines
SEBI’s new circular offers various methods that InvITs can adopt to meet the 25% public unitholding mandate. Here is an analysis of the options:
1. Issuing Units to the Public: The most straightforward method is to issue more units to the public.
2. Offer for Sale of Units: This method involves selling units held by Sponsors, Investment Managers, Project Managers and their related parties to the public, either through an offer document or through the secondary market, following the guidelines of a previous circular.
3. Rights Issue to Public Unitholders: In this method, those parties mentioned above would give up their entitlement to units that might arise from such an issue, thus increasing public holdings.
4. Bonus Issue to Public Unitholders: Similar to the rights issue, the parties would forgo their entitlement to units that may arise from a bonus issue.
5. Allotment of Units under Institutional Placement: This method involves specifically targeting institutional investors.
6. Open Market Sales: The parties can sell a certain percentage of the total paid-up unit capital of the InvIT in the open market, with specific limitations and conditions outlined in the circular.
7. Transfer of Units to an ETF: This involves transferring a maximum of 5% of the paid-up unit capital of the InvIT to an ETF managed by a SEBI-registered mutual fund.
8. Any Other Method Approved by the Board: This allows for flexibility, where an Investment Manager could propose alternative methods to meet public unitholding requirements.
The Stock Exchanges will monitor the adoption of these methods by InvITs and report any non-compliance to SEBI on a quarterly basis.
Conclusion:
The circular represents SEBI’s commitment to maintaining transparency and ensuring fair public ownership in Infrastructure Investment Trusts. By offering a variety of methods to achieve minimum public unitholding, SEBI provides InvITs with the flexibility to choose the most suitable option that aligns with their business strategies. The monitoring role of the Stock Exchanges further underscores the importance of regulatory compliance in this matter. The new circular serves as an important step towards a more inclusive and robust infrastructure investment environment in India.
Full text of the Circular is as follows:-
Securities and Exchange Board of India
Circular No. SEBI/HO/DDHS/PoD2/P/CIR/2023/107 Dated: June 27, 2023
To
All Infrastructure Investment Trusts
All Parties to the InvIT
All Recognized Stock Exchanges
Madam / Sir,
Sub: Manner of achieving minimum public unitholding – InvITs
1. Regulation 14(1A) of SEBI (Infrastructure Investment Trusts) Regulations, 2014 (“InvIT Regulations”) inter-alia mandates that any listed InvIT which has public unitholding below twenty-five percent, shall increase its public unitholding to at least twenty-five percent within a period of three years from the date of listing of units pursuant to initial offer.
2. In order to facilitate InvITs to achieve minimum public unitholding compliance as required under InvIT Regulations, Investment Manager of the InvIT shall adopt any of the following methods:
|
No. |
Method | Specific conditions, if any, applicable |
| 1. | Issuance of units to public through offer document | – |
| 2. | Offer for sale of units held by Sponsor(s) / Investment Manager / Project Manager and their associates/related parties to public through offer document |
– |
| 3. | Offer for sale of units held by Sponsor(s) / Investment Manager / Project Manager and their associates/related parties through the Stock Exchange mechanism i.e., the secondary market, in terms of circular reference No. SEBI/HO/MRD/MRD-PoD-3/P/CIR/2023/10 dated January 10, 2023. |
– |
| 4. | Rights issue to public unitholders | Sponsor(s) / Investment Manager / Project Manager and their associates/related parties unitholders shall forgo their entitlement to units that may arise from such issue. |
| 5. | Bonus Issue to public unitholders | Sponsor(s) / Investment Manager /Project Manager and their associates/related parties unitholders shall forgo their entitlement to units that may arise from such issue. |
| 6. | Allotment of units under Institutional placement | |
| 7. | Sale of units held by Sponsor(s) / Investment Manager /Project Manager and their associates/related parties in the open market in any one of the following ways, subject to compliance with the conditions specified:
i. Sponsor(s) / Investment ii. Sponsor(s)/ Investment Manager / Project Manager and their associates/related parties can sell upto a maximum of 5% of the paid-up unit capital of the InvIT during a financial year subject to the condition that the public unitholding in the InvIT shall become 25% after completion of such sale. The sale can be a single tranche or inmultiple tranches not exceeding a period of 12 months and the amount of units to be sold shall not exceed the trading volume of the units of the InvIT during the preceding 12 months from the date of announcement. |
i. Sponsor(s) / Investment Manager /Project Manager and their associates/related parties can use either the mechanism specified at Sl. No. 7 (i) or 7 (ii) to comply with minimum public unitholding requirements, but not both.ii. The Investment Manager of the InvIT shall, at least one trading day prior to every such proposed sale, announce the following details to the stock exchange(s) where its units are listed:a) the intention of the Sponsor(s) / Investment Manager/ Project Manager and their associates/ related parties to sell and the purpose of sale;b)the details of Sponsor(s) / Investment Manager/ Project Manager and their associates/ related parties,who propose to divest their unitholding;c)total number of units and percentage of unit holding in the InvIT that is proposed to be divested; andd)the period within which the entire divestment process will be completed.iii. The Investment Manager of the InvIT shall also give an undertaking to the recognized stock exchange(s) obtained from the ponsor (s)/Investment Manager/ Project Manager and their associates/ related parties that they shall not buy any units in the open market on the dates on which the units are being sold by them as stated above.iv. The InvIT, its Sponsor(s) / Investment Manager/ Project Manager and their associates/ related parties shall ensure compliance with all applicable legal provisions including that of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 and InvIT Regulations. |
| 8. | Transfer of units held by Sponsor(s) /Investment Manager /Project Manager and their associates/related parties to an Exchange Traded Fund (ETF) managed by a SEBI-registered mutual fund, subject to a maximum of 5% of the paid-up unit capital of the InvIT. |
The Investment Manager of the InvIT shall, at least one trading day prior to such proposed transfer, announce the following details to the stock exchange(s) where its units are listed:i. the intention of the Sponsor(s)/ Investment Manager/ Project Manager and their associates/ related parties to transfer units and the purpose of such transfer;ii. the details of Sponsor(s) / Investment Manager/ Project Manager and their associates/ related parties who propose to transfer their units in the InvIT;iii. total number of units and percentage of unitholding proposed to be transferred; andiv. Details of the ETF to which units are proposed to be transferred by the Sponsor(s)/Investment Manager/ Project Manager and their associates/ related parties.The Investment Manager of the InvIT shall also give an undertaking to the recognized stock exchange(s)obtained from the Sponsor(s) / Investment Manager/ Project Manager and their associates/related parties that they shall not subscribe to the units of such ETF to which units have been transferred by Sponsor(s) / Investment Manager/Project Manager and their associates/related parties entities for the purpose of MPS compliance. |
| 9. | Any other method as may be approved by the Board on a case to case basis. | The Investment Manager of the InvIT shall approach the Board with an application containing relevant details to obtain prior permission.
The Board would endeavour to communicate its decision within thirty days from the date of receipt of the proposal or the date of receipt of additional information as sought from the Investment Manager of the InvIT. |
3. The Stock Exchange(s) shall monitor the methods adopted by InvITs to increase their public unitholding and comply with minimum public unitholding requirements in terms of this circular. Non-compliance, if any, observed by the Stock Exchange(s) with respect to the method(s) and / or conditions prescribed herein, shall be reported to SEBI on a quarterly basis.
4. This Circular is issued in exercise of the powers conferred under sections 11(1) of the Securities and Exchange Board of India Act, 1992 read with Regulation 14(1A) and 33 of InvIT Regulations. This circular is issued with the approval of the competent authority.
5. This circular is available atsebi.gov.in under the link “Legal” and “Circulars”.
6. The recognized Stock Exchanges are advised to disseminate the contents of this Circular on their website.
Yours faithfully,
Ritesh Nandwani
Deputy General Investment Manager
Policy and Development-II
Department of Debt and Hybrid Securities
+91-22-26449696
[email protected]
