On May 27, 2024, SEBI announced amendments to the Infrastructure Investment Trusts (InvITs) Regulations, 2014, introducing key changes including the exclusion of subordinate units from certain regulatory calculations, the requirement for a single class of units with equal rights, and new provisions for the issuance and transfer of subordinate units. These units, issued only by privately placed InvITs to sponsors and their associates, do not carry voting or distribution rights and must meet performance benchmarks for reclassification to ordinary units. The amendments also enhance disclosure requirements, mandating detailed reporting on subordinate units’ terms, reclassification progress, and unitholding patterns, aimed at improving transparency and investor protection in the InvIT sector.
SECURITIES AND EXCHANGE BOARD OF INDIA
NOTIFICATION
Mumbai, the 27th May, 2024
SECURITIES AND EXCHANGE BOARD OF INDIA (INFRASTRUCTURE INVESTMENT TRUSTS)
(AMENDMENT) REGULATIONS, 2024
No. SEBI/LAD-NRO/GN/2024/182.—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) (Amendment) Regulations, 2024.
2. They shall come into force on the date of their notification in the Official Gazette.
3. In the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014, ─
(1) in regulation 2, in sub-regulation (1), –
i. in clause (zg), the following explanation shall be inserted, namely –
“Explanation. – For the purpose of calculating the number of outstanding units, any outstanding subordinate units shall not be included”;
ii. after clause (zza), the following clause shall be inserted, namely –
“(zzaa) “subordinate unit” means an instrument issued by an InvIT which can be reclassified as an ordinary unit”;
iii. in clause (zzd), after the words and expression ““unit”” and before the word “means”, the words and expression “or “ordinary unit”” shall be inserted;
(2) in regulation 4, in sub-regulation (2),
(a) clause (h) shall be substituted with the following, namely –
“(h) subject to the provisions of Chapter IVA of these regulations, there shall be only one class of units and all units shall carry equal voting rights and distribution rights associated with such units.”;
(b) after clause (h), clause (i) shall be inserted, namely –
“(i) the unitholder(s) holding not less than ten percent of the total outstanding units of the InvIT, either individually or collectively, shall –
(i) be entitled to nominate one director on the board of directors of the Investment Manager, in such manner as may be specified by the Board:
Provided 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;
(ii) comply with stewardship code specified in Schedule VIII of these regulations.”;
(3) in regulation 12, after sub-regulation (3A), the following sub-regulations shall be inserted, namely –
“(4) For the purpose of calculating the minimum unitholding requirements as mentioned in sub-regulations (3) and (3A) above, subordinate units shall not be considered in computing total outstanding units of the InvIT
(5) Subordinate units shall not be eligible for meeting the minimum unitholding requirement as mentioned in sub-regulations (3) and (3A) above.”;
(4) in regulation 14, after sub-regulation (5A), the following sub-regulation shall be inserted, namely –
“(5B) No InvIT shall raise funds through public issue if any subordinate units have been issued and are outstanding.”;
(5) after chapter IV and before chapter V, the following chapter shall be inserted, namely–
“CHAPTER IVA
FRAMEWORK FOR ISSUANCE OF SUBORDINATE UNITS
Applicability.
17A. (1) The provisions contained in this Chapter shall only apply to subordinate units issued after the notification of this Chapter:
Provided that the provisions pertaining to disclosure requirements contained in this Chapter shall also apply to any subordinate units issued prior to notification of this Chapter.
(2) Subject to the provisions contained in this Chapter, the provisions of these regulations applicable to ordinary units shall apply mutatis mutandis to issuance of subordinate units.
Issuance of Subordinate Units.
17B. (1) The subordinate units shall only be issued by a privately placed InvIT upon acquisition of an infrastructure project.
(2) The subordinate units shall be issued only to the sponsor, its associates and the sponsor group and shall be deemed to be a part of the consideration for acquisition of the infrastructure project from such sponsor, its associates and the sponsor group.
(3) The subordinate units shall not carry any voting rights or distribution rights.
(4) The subordinate units shall be issued in a dematerialized form with an International Securities Identification Number, distinct from that of the ordinary units.
(5) The subordinate units shall be listed on a recognised stock exchange after their reclassification into ordinary units in accordance with the provisions contained in these regulations.
(6) The subordinate units may be issued by way of an initial offer or any offer subsequent to the initial offer, either along with the issue of ordinary units or without the issue of ordinary units.
(7) The issue of subordinate units made after the initial offer by the InvIT shall require the approval of the unitholders where votes cast in favour of the resolution shall not be less than one and a half times the votes cast against the resolution:
Provided that any unitholder who is party to the acquisition of the infrastructure project including the sponsor, its associates and sponsor group, shall not be entitled to vote.
(8) The price of subordinate units shall be determined according to the pricing guidelines applicable for issuance of ordinary units.
(9) Prior to issuance of subordinate units, the investment manager shall obtain in-principle approval from the recognised stock exchange for listing of such subordinate units after their reclassification into ordinary units.
(10) The enabling provisions authorising the issuance of subordinate units shall be specified in the Trust Deed.
(11) The investment manager shall disclose the terms and conditions governing subordinate units in the Term Sheet.
(12) The investment manager shall disclose the impact of potential reclassification of subordinate units into ordinary units in the Term Sheet in such manner as may be specified by the Board.
(13) The investment manager shall disclose the Term Sheet in the placement memorandum, the explanatory statement to the notice for unitholders meeting as well as any document which may be disclosed to investors including prospective investors.
(14) The InvIT shall also disclose the Term Sheet, the placement memorandum and the notice for unitholders meeting including the explanatory statement on its website and shall file the same with the recognised stock exchange.
(15) The amount of subordinate units issued at the time of acquisition of an infrastructure project by the InvIT shall not exceed ten percent of the acquisition price of the infrastructure project.
(16) The total number of outstanding subordinate units issued by an InvIT at any point of time shall not exceed ten percent of the total number of outstanding ordinary units issued by such InvIT:
Provided that an InvIT which has subordinate units outstanding exceeding the above limit, as on the date of notification of this chapter, such InvIT may issue additional subordinate units subject to compliance with the above limit:
Provided further that for the purpose of compliance with the above limit, all outstanding subordinate units shall be considered including the subordinate units issued prior to the date of the notification of this chapter.
(17) The terms and conditions of the subordinate units shall not be varied after their issuance, except in accordance with the provisions of this chapter.
Transfer of subordinate units.
17C. (1) The subordinate units shall be locked in till its reclassification into ordinary units
(2) The subordinate units shall not be transferable to any person except the sponsor, its associates and the sponsor group entities.
(3) The subordinate units shall not be encumbered in favor of any person except the sponsor, its associates and the sponsor group entities.
(4) The depository shall not register the transfer or encumbrance of a subordinate unit in favour of any person unless such a person is a sponsor of the InvIT, associate of such sponsor or belongs to the sponsor group of the InvIT.
(5) The investment manager shall disclose any inter-se transfer or inter-se encumbrance of subordinate units to the recognised stock exchange within one working day of such transfer or encumbrance.
(6) In case of a change in the sponsor, the outgoing sponsor shall transfer the subordinate units held by it, if any, to another sponsor, its associates or sponsor group.
Entitlement date, entitlement event and performance benchmark.
17D. (1) The entitlement date, the entitlement event and the performance benchmark for reclassification of subordinate units to ordinary units shall be clearly defined and specified in the Term Sheet.
(2) The performance benchmark for reclassification of subordinate units shall be quantifiable, objective and based on the audited financial statements.
(3) The minimum time period between the issuance of subordinate units and entitlement date for reclassification of the subordinate units to ordinary units shall be three year.
(4) The entitlement date may be extended in the manner specified in the Term Sheet, subject to the following conditions:
(a) the entitlement date shall not be extended for more than one year at a time and shall not be extended more than two times in total;
(b) the extension of the entitlement date may be done only for cases where a possibility of such extension is clearly contemplated, duly approved and disclosed in the Term Sheet prior to the issuance of subordinate units;
(c) the extension of entitlement date shall be allowed only in case of any unforeseen circumstances as mentioned in the Term Sheet such as impossibility on account of a force majeure event or illegality on account of change in law or an order of any court or authority;
(d) the explanatory statement to the notice of unitholders meeting convened for seeking approval for the extension in entitlement date shall disclose the reasons for proposing such extension and the potential impact on account of such extension on the ordinary unitholders, including any potential dilution of their beneficial interest in the InvIT; and
(e) the extension of the entitlement date shall require the approval of the unitholders as provided for in sub-regulation (7) of regulation 17B;
Progress related to achievement of performance benchmark.
17E. (1) The investment manager shall monitor the progress related to the achievement of performance benchmark and shall report such progress annually or with such frequency as may be specified by the Board, after certification by the statutory auditor of the InvIT and approval of the trustee and the audit committee of the investment manager.
(2) The investment manager shall disclose the progress related to achievement of performance benchmark in the Annual Report of the InvIT.
(3) The investment manager shall disclose the diluted NAV and the diluted distribution per unit to the stock exchange along with NAV and distribution per unit till the time subordinate units are outstanding.
Explanation. – For the purpose of this sub-regulation –
(a) “diluted NAV” or “diluted net asset value” means the value of the InvIT assets reduced by the external debt divided by the total number of outstanding ordinary units and subordinate units; and
(b) “diluted distribution per unit” means the value of total distribution, divided by the total number of outstanding ordinary units and subordinate units.
Process for reclassification of subordinate unit.
17F. (1) The status of achievement of performance benchmark shall be certified by the statutory auditor of the InvIT for reclassification of subordinate units to ordinary units and shall be reviewed by the trustee and the audit committee of the investment manager.
(2) If the performance benchmark is achieved at the end of the entitlement date, including extended period, if any; the subordinate units shall be reclassified into equal number of ordinary units on a pari passu basis in accordance with the terms and conditions of subordinate units mentioned in the Term Sheet.
Explanation 1. – The reclassification can happen for all subordinate units either together or on a piecemeal basis in accordance with the terms and conditions and on the achievement of performance benchmarks as disclosed in the Term Sheet.
Explanation 2. – The subordinate units may be reclassified into ordinary units, in part or in full in accordance with the terms and conditions and on the achievement of performance benchmarks as disclosed in the Term Sheet.
(3) If the performance benchmark is not achieved at the end of the entitlement date, including extended period, if any, the subordinate units shall be extinguished without any payment to the holder of subordinate units.
(4) The board of directors of the investment manager shall consider reclassification of subordinate units into ordinary units or extinguishment of the subordinate units depending on the achievement of the performance benchmark and pass a resolution making the necessary recommendation to this effect to the trustee.
(5) The recommendation for reclassification of the subordinate units into ordinary units or extinguishment of the subordinate units, as the case may be, shall be considered by the trustee and after ensuring compliance with the provisions of these regulations, the trustee may approve reclassification of the subordinate units into ordinary units or extinguishment of the subordinate units, as the case may be, and intimate the same to the investment manager.
(6) Pursuant to the approval of the trustee, the investment manager shall make the necessary intimation to the recognised stock exchange, depositories and the Registrar and Transfer Agent.
(7) The investment manager shall ensure that the record date is disclosed as part of the intimation made under this regulation, at least two working days prior to the record date, excluding the date of intimation and the record date.
Explanation. – For the purpose of this chapter, record date shall mean the date from
when subordinate units shall be reclassified as ordinary units.
(8) The subordinate units upon being reclassified as ordinary units shall be listed on the recognised stock exchange(s) upon receipt of final listing and trading approval from such stock exchange(s).”;
(6) in regulation 22, in sub-regulation (8), after clause (xii), the following clause shall be inserted, namely – “(xiia) there are no outstanding subordinate units; and”; and
(7) in regulation 23, after sub-regulation (9), the following sub-regulation shall be inserted, namely –
“(10) The investment manager shall disclose the unitholding pattern for ordinary units and subordinate units separately in such manner as may be specified by the Board.”
BABITHA RAYUDU, Executive Director
[ADVT.-III/4/Exty./140/2024-25]
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 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/2023/137with effect from July 3, 2023.
n. Securities and Exchange Board of India (Infrastructure Investment Trusts) (Second Amendment) Regulations, 2023 vide No. SEBI/LAD-NRO/GN/2023/145 with effect from August 16, 2023.
o. Securities and Exchange Board of India (Infrastructure Investment Trusts) (Third Amendment) Regulations, 2023 vide notification No. SEBI/LAD-NRO/GN/2023/159 with effect from October 20, 2023.
