Introduction: The Securities and Exchange Board of India (SEBI) has once again demonstrated its commitment to regulatory excellence by issuing the Securities and Exchange Board of India (Infrastructure Investment Trusts) (Second Amendment) Regulations, 2023, on August 16, 2023. These amendments represent a critical step forward in enhancing the governance, transparency, and functioning of Infrastructure Investment Trusts (InvITs) operating in India. Let’s delve into the comprehensive overview of the key amendments and their far-reaching implications.
Key Amendments:
Expanded Definitions:
- The amendment introduces new definitions to enhance clarity and understanding. Notably, “group entities of the Investment Manager” is now defined, including entities controlled by and controlling the Investment Manager.
- A “Self-Sponsored Investment Manager” is now recognized, referring to an Investment Manager with dual responsibilities as the Investment Manager and sponsor.
Minimum Unitholding Requirement:
- The revised regulations mandate that sponsor(s) and sponsor group(s) collectively maintain a minimum unitholding of 15% of total outstanding units for the first three years after unit listing.
- The amendment specifies conditions for conversion to a Self-Sponsored Investment Manager, such as continuous AAA rating, compliance with leverage thresholds, net worth criteria, and more.
Stewardship Code Compliance:
- The new regulations introduce a stewardship code applicable to unitholders holding a minimum of 10% of the outstanding units. This code underscores their responsibility to act in the best interests of the InvIT and its unitholders.
- The stewardship code necessitates the formulation of a policy for discharge of stewardship responsibilities, conflict of interest management, periodic monitoring, intervention policies, and more.
Lock-In Period and Encumbrance:
- Units held to fulfill the minimum unitholding requirements will be locked in and cannot be encumbered.
- Encumbrances established before the amendment’s effective date may continue as long as they existed on that date.
Director Nomination and Exit Option:
- Unitholders possessing a minimum of 10% of outstanding units now have the authority to nominate a director on the board of the Investment Manager, subject to certain conditions.
- In cases where a conversion to a Self-Sponsored Investment Manager occurs, dissenting unitholders must be offered an exit option through the purchase of their units.
Implications and Conclusion: SEBI’s meticulous amendments to the Infrastructure Investment Trusts regulations underline its continuous dedication to fostering a robust investment environment in India. By addressing critical aspects such as unitholder responsibilities, unitholding requirements, and transparency enhancement, these amendments aim to fortify the foundation of the InvIT sector. Industry stakeholders must grasp the implications of these changes to ensure seamless compliance and navigate the evolving landscape of infrastructure investments. As investors and market participants adapt to these regulations, the overall integrity and efficiency of the InvIT ecosystem are poised to advance, ultimately benefitting both investors and the economy at large.
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SECURITIES AND EXCHANGE BOARD OF INDIA
NOTIFICATION
Mumbai, the 16th August, 2023
SECURITIES AND EXCHANGE BOARD OF INDIA (INFRASTRUCTURE INVESTMENT TRUSTS)
(SECOND AMENDMENT) REGULATIONS, 2023
No. SEBI/LAD-NRO/GN/2023/145.—In exercise of the powers conferred under section 30 read with sections 11 and 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following regulations to further amend the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014, namely: –
1. These regulations may be called the Securities and Exchange Board of India (Infrastructure Investment Trusts) (Second Amendment) Regulations, 2023.
2. They shall come into force on the date of their publication in the Official Gazette.
3. In the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014, ─
I. in regulation 2, sub-regulation (1),
i. the existing clause (sa) shall be renumbered as clause (sb) and the existing clause (sb) as clause (sc);
ii. after clause (s), the following clause shall be inserted, namely,-
“(sa) “group entities of the Investment Manager” means:
(i) entities or person(s) which are controlled by the Investment Manager;
(ii) entities or person(s) who control the Investment Manager;
(iii) entities or person(s) which are controlled by entities or person(s) specified in sub-clause (ii).”
iii. in clause (saa), in sub-clause (ii), after the word “associate” and before the symbol “;”, the words “or a member of the sponsor group of the InvIT” shall be inserted;
iv. in clause (zk), the words and symbols “sponsor(s)” shall be substituted by the words “sponsor groups”;
v. the existing clause (zxa) shall be renumbered as clause (zxb);
vi. after clause (zx), the following clause shall be inserted, namely,-
“(zxa) “Self-Sponsored Investment Manager” means the Investment Manager of an InvIT who has dual responsibilities of both the Investment Manager as well as the sponsor;”
vii. after clause (zxb), the following clause shall be inserted, namely,-
“(zxc) “sponsor group” includes-
(i) the sponsor(s);
(ii) entities or person(s) which are controlled by such sponsor;
(iii) entities or person(s) who control such body corporate;
(iv) entities or person(s) which are controlled by entities or person(s) specified in clause (iii).”
II. in regulation 4, in sub-regulation (2), –
i. in clause (d), in sub-clause (i), after the words “each sponsor” and before the words “shall be”, the words “and sponsor group” shall be inserted;
ii. in clause (d), after sub-clause (i), the following provisos shall be inserted namely, –
“Provided that, for each sponsor group not less than one person shall be identified as a sponsor:
Provided further that of the entities categorized as sponsor group, only the following entities may be considered:
a) a person or entity who is directly or indirectly holding an interest or shareholding in any of the assets or SPVs or holdco(s) proposed to be transferred to the InvIT;
2) a person or entity who is directly or indirectly holding units of the InvIT on post-issue basis;
3) a person or entity whose experience is being utilized by the sponsor for meeting with the eligibility conditions required under sub-clause (iii) of clause (d) of sub-regulation (2) of regulation 4 of these regulations.”
iii. in clause (h), –
a. the symbol “;” after the word “units” in the non-obstante clause shall be replaced with the symbol “:”;
b. the following provisos shall be inserted after the existing non-obstante clause, namely, –
“Provided that unitholder(s) holding not less than ten percent of the total outstanding units of the InvIT, either individually or collectively, shall be entitled to nominate one director on the board of directors of the Investment Manager, in the manner as may be specified by the Board:
Provided further that the director so nominated shall recuse from voting on any transaction where such nominee director or associate of such nominee director or the unitholder who nominated such nominee director or associate of such unitholder is a party:
Provided further that any unitholder holding not less than ten percent of the total outstanding units of the InvIT shall comply with stewardship code specified in Schedule VIII of these regulations.”
III. regulation 7A shall be omitted.
IV. in regulation 12, –
i. in the heading, after the words and symbols “sponsor(s)”, the words and symbols “and sponsor group(s)” shall be inserted;
ii. in sub-regulation (1), after the words and symbols “sponsor(s)”, the words and symbols “and sponsor group(s)” shall be inserted;
iii. in sub-regulation (2), after the words and symbols “sponsor(s)”, wherever appearing, the words and symbols “and sponsor group(s)” shall be inserted;
iv. the existing sub-regulation (3), clauses (i)-(iii) thereunder and the first proviso to clause (iii) shall be substituted by the following, namely, –
“(3) The sponsor(s) and sponsor group(s) shall, at all times, collectively hold not less than fifteen percent of the total outstanding units of the InvIT, for three years from the date of listing of units in the initial offer, subject to the following:
a) sponsor(s) and sponsor group(s) would be responsible for all acts, omissions, representations and covenants of the InvIT related to the formation of InvIT or sale or transfer of assets/holdco/SPV to the InvIT;
b) the InvIT or the trustee of the InvIT shall also have recourse against the sponsor(s) and sponsor group(s) for any breach in this regard;
c) project manager of the InvIT shall be the sponsor or an associate of the sponsor and shall continue to act in such capacity for a period of minimum three years from the date of listing of InvIT units unless suitable replacement is appointed by the unitholders through the Trustee:
Provided that the condition as specified in clause (c) of this sub-regulation shall not be applicable where the sponsor(s) and sponsor group(s) together hold not less than twenty-five percent of the total outstanding units of the InvIT after initial offer of units, at all times, during a period of first 3 years from the date of the listing of units issued in initial offer:
Provided further that any holding by sponsor and sponsor group exceeding the fifteen percent or twenty-five percent, as the case may be, shall be held for a period of not less than one year from the date of listing of units issued in initial offer:”
after sub-regulation (3), the following sub-regulation and the provisos shall be inserted namely, –
“(3A) The sponsor(s) and sponsor group(s) shall collectively hold not less than –
(i) five percent of the total outstanding units of the InvIT, from the beginning of fourth year and till the end of fifth year from the date of listing of the units issued in the initial offer;
(ii) three percent of the total outstanding units of the InvIT, from the beginning of sixth year and till the end of tenth year from the date of listing of the units issued in the initial offer;
(iii)two percent of the total outstanding units of the InvIT, from the beginning of eleventh year and till the end of twentieth year from the date of listing of the units issued in the initial offer;
(iv)one percent of the total outstanding units of the InvIT, after the completion of the twentieth year from the date of listing of units issued in the initial offer:
Provided that the maximum value of units to be held by sponsor(s) and sponsor group(s) for compliance with clauses (i) to (iv) shall not exceed five hundred crore rupees or such other value as may be decided by the Board from time to time and such valuation shall be based on the latest available net asset value of the of the InvIT:
Provided further that an assessment of compliance of requirements under clauses (i) to (iv) of this sub-regulation shall be done at the time of each fresh issuance of units and at the beginning of change in threshold of the percentage for minimum unitholding requirement as specified in this sub-regulation:
Provided further that for InvITs that have already issued units pursuant to an initial offer as on the date of coming into effect of the Securities and Exchange Board of India (Infrastructure Investment Trusts) (Second Amendment) Regulations, 2023, the provisions contained in sub-regulation (3) and (3A) of this regulation shall be applicable only for the additional units issued by the InvIT after such date and the units that are locked in at the time of initial offer shall continue to be locked in till the completion of three years from the date of listing of units in such initial offer.”
v. sub-regulation 4 shall be omitted.
vi. after sub-regulation 4, the following sub-regulation shall be inserted namely, –
“(5) The units required to be held in terms of sub-regulation (3) and (3A) shall be locked in and shall not be encumbered:
Notwithstanding the above, any encumbrance created on units held to comply with the minimum unit holding requirement applicable before the date of coming into effect of the Securities and Exchange Board of India (Infrastructure Investment Trusts) (Second Amendment) Regulations, 2023, may continue if the encumbrance exist on such date.”
V. in regulation 22, –
i. in sub-regulation (4), clause (fa) shall be omitted;
ii. in sub-regulation (7), –
a) after the words “inducted sponsor” and before the symbols “,-”, the words “or conversion to Self-Sponsored Investment Manager” shall be inserted;
b) in clause (b), after sub-clause (ii), the following sub-clause shall be inserted, namely, –
“(iii) in case of conversion to Self-Sponsored Investment Manager, the Investment Manager shall provide the dissenting unit holders an option to exit by buying their units in the manner specified by the Board;”
iii. after sub-regulation (7), the following sub-regulation shall be inserted namely, –
“(8) The existing sponsor(s) proposing to disassociate as sponsor(s) by seeking to convert the Investment Manager to Self-Sponsored Investment Manager shall comply with the following conditions:
(i) the InvIT has been listed for a period of at least five years;
(ii) the InvIT has undertaken not less than twelve distributions on a continuous basis and has complied with the distribution norms as per these Regulations in the preceding five years;
(iii) the InvIT is rated AAA by a registered credit rating agency for a continuous period of five years immediately preceding the exit of the sponsor;
(iv) during the period of preceding five years, the InvIT has not breached, at any time, the maximum leverage thresholds specified in these regulations;
(v) the Investment Manager is meeting the net worth criteria specified for the sponsor in these regulations;
(vi) the minimum unitholding requirement applicable to sponsor(s) and sponsor group(s) shall be complied with, on or after the date of conversion of the Investment Manager to Self-Sponsored Investment Manager, by the Investment Manager, shareholders of the Investment Manager and/or group entities of Investment Manager;
Explanation: Investment Manager, shareholders of the Investment Manager and/or group entities of Investment Manager may acquire units of the InvIT for the purpose of compliance of above condition.
(vii) the sponsor(s) or its associate(s) do not own or control the Investment Manager of the InvIT on or after the date of conversion of the Investment Manager to Self-Sponsored Investment Manager;
(viii) the sponsor has not transferred / sold assets to the InvIT in the last three years and no assets/ projects shall be acquired by the InvIT from the outgoing sponsor(s) for a period of one year from the date of conversion to Self-Sponsored Investment Manager;
(ix) at least one of the sponsor(s) proposing to disassociate should have been a sponsor of the InvIT for a minimum period of five years;
(x) the InvIT shall not have any under-construction assets acquired from the sponsor that have not commenced commercial operations;
(xi) the sponsor(s) or its associate(s) are not the Project Manager and do not own or control the Project Manager on or after the date of conversion of the Investment Manager to Self-Sponsored Investment Manager;
(xii) unitholders approval in terms of sub-regulation (7) of this regulation and consent of the Trustee has been obtained for conversion to Self-Sponsored Investment Manager;
(xiii) such other conditions as may be specified by the Board.”
VI. in Schedule I, paragraph 1, in sub-paragraph (c), after the words “their associates”, and before the words “or trustee”, the words and symbols “or sponsor group(s)” shall be inserted;
VII. in Schedule III, paragraph 13, in sub-paragraph (c) after the words “associates” and before the words “and the trustee”, the words and symbols “, sponsor group(s)” shall be inserted;
VIII. in Schedule IV, in Part-A, in paragraph 17, after the words “associates” and before the words “and the Trustee”, the words and symbols “, sponsor group(s)” shall be inserted;
IX. after Schedule VII, the following Schedule shall be inserted namely, –
“Schedule VIII : STEWARDSHIP CODE
[See Regulation 4(2)(h)]
The following principles of stewardship code shall be complied with by any unitholder holding not less than ten percent of the total outstanding units of the InvIT:
1. They must act in the best interests of the InvIT and its unitholders as a whole;
2. They should formulate a comprehensive policy on the discharge of their stewardship responsibilities and review and update the same periodically;
3. They should have a policy to manage issues of conflict of interest while fulfilling their stewardship responsibilities;
4. They should periodically monitor the InvIT and its investee entities viz. HoldCo(s) and SPV(s);
5. They should have a policy on intervention in the InvIT and its HoldCo(s) and SPV(s);
6. They should have a policy on ”
BABITHA RAYUDU, Executive Director
[ADVT.-III/4/Exty./362/2023-24]
Footnotes:
1. The Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 was published in the Gazette of India on September 26, 2014 was published in the Gazette of India on September 26, 2014 vide No. LAD-NRO/GN/2014-15/10/1577.
2. The Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 was subsequently amended by the –
a. Securities and Exchange Board of India (Infrastructure Investment Trusts) (Amendment) Regulations, 2016,, vide No. SEBI/LAD/NRO/GN/2016-17/021, with effect from November 30, 2016.
b. Securities and Exchange Board of India (Infrastructure Investment Trusts) (Amendment) Regulations, 2017, vide No. SEBI/LAD-NRO/GN/2017-18/024, with effect from December 15, 2017.
c. Securities and Exchange Board of India (Infrastructure Investment Trusts) (Amendment) Regulations, 2018, vide No. SEBI/LAD-NRO/GN/2018/07, with effect from April 10, 2018.
d. Securities and Exchange Board of India (Infrastructure Investment Trusts) (Amendment) Regulations, 2019, vide No. SEBI/LAD-NRO/GN/2019/10, with effect from April 22, 2019.
e. Securities and Exchange Board of India (Infrastructure Investment Trusts) (Amendment) Regulations, 2020, vide No. SEBI/LAD-NRO/GN/2020/05, with effect from March 02, 2020.
f. Securities and Exchange Board of India (Regulatory Sandbox) (Amendment) Regulations, 2020, vide No. SEBI/LAD-NRO/GN/2020/10, with effect from April 17, 2020.
g. Securities and Exchange Board of India (Infrastructure Investment Trusts) (Second Amendment) Regulations, 2020 vide No. SEBI/LAD-NRO/GN/2020/15, with effect from June 16, 2020
h. Securities and Exchange Board of India (Infrastructure Investment Trusts) (Amendment) Regulations, 2021 vide No. SEBI/LAD-NRO/GN/2021/27, with effect from July 30, 2021.
i. Securities and Exchange Board of India (Regulatory Sandbox) (Amendment) Regulations, 2021 vide No. SEBI/LAD-NRO/GN/2021/30., with effect from August 31, 2021.
j. Securities and Exchange Board of India (Infrastructure Investment Trusts) (Amendment) Regulations, 2022 vide No. SEBI/LAD-NRO/GN/2022/83, with effect from May 4, 2022.
k. Securities and Exchange Board of India (Infrastructure Investment Trusts) (Second Amendment) Regulations, 2022 vide No. SEBI/LAD-NRO/GN/2022/101 with effect from January 1, 2023.
l. Securities and Exchange Board of India (Infrastructure Investment Trusts) (Amendment) Regulations, 2023 vide No. SEBI/LAD-NRO/GN/2023/122 with effect from February 14, 2023.
m. Securities and Exchange Board of India (Alternative Dispute Resolution Mechanism) (Amendment) Regulations, 2023 vide No. SEBI/LAD–NRO/GN/2023/137 with effect from July 4, 2023.
