Introduction
On February 5, 2026, the Securities and Exchange Board of India (“SEBI“) issued a Consultation Paper (the “Paper“) proposing amendments to the SEBI (Real Estate Investment Trusts) Regulations, 2014 (“REIT Regulations“) and the SEBI (Infrastructure Investment Trusts) Regulations, 2014 (“InvIT Regulations“). The Paper was prepared by SEBI’s Department of Debt and Hybrid Securities, drawing on representations from the Indian REITs Association (“IRA”), Bharat InvITs Association (“BIA”), and recommendations of the Hybrid Securities Advisory Committee (“HYSAC”). Comments closed on February 26, 2026.
The Paper addresses four discrete regulatory pain-points that have accumulated as India’s REIT and InvIT markets have matured: (i) what happens to SPV status when a PPP concession expires; (ii) the artificially narrow universe of liquid mutual funds available to REITs and InvITs; (iii) the asymmetric treatment of greenfield investment between private and public InvITs; and (iv) ambiguity over permitted uses of fresh debt when an InvIT’s Net Borrowings exceed 49% of asset value. Each proposal has material implications for deal structuring, portfolio management, and capital allocation strategies.
Background
REITs and InvITs operate within a tightly defined investment and structural framework under their respective regulations. The core investment mandate requires both types of trusts to deploy at least 80% of asset value in qualifying assets, with the residual 20% available for a prescribed list of permitted investments. This framework was designed to ensure investor-grade certainty but has, over time, produced unintended rigidities.
Four specific problem areas crystallised through industry feedback:
1. SPV Qualification Post-Concession: The InvIT Regulations define an SPV as an entity that holds at least 90% of its assets directly in infrastructure projects. When a PPP concession expires, the underlying project reverts to the concessioning authority, causing the SPV to fail this definitional threshold. Yet practical realities—ongoing tax assessments, GST proceedings, defect liability obligations, and pending litigation—prevent immediate wind-down. This created a structural gap: the InvIT was obliged to remain invested in an entity that no longer technically qualified as an SPV under the regulations.
2. Liquid Mutual Fund Restrictions: Eligible liquid mutual fund investment was confined to schemes with a Credit Risk Value (“CRV”) of at least 12 (effectively AAA-rated paper or above) falling in the Class A-I category of SEBI’s Potential Risk Class (“PRC”) matrix. In practice, only 9 of 38 liquid mutual fund schemes qualified—and 3 of those had AUMs below Rs. 1,000 crores—creating undesirable concentration risk.
3. Greenfield Access Disparity: Publicly listed InvITs could allocate up to 10% of asset value to pure greenfield (under-construction) projects. Privately listed InvITs were excluded, a restriction that sat uncomfortably given that private InvIT units are accessible only to institutional investors and body corporates with a minimum lot size of Rs. 25 lakhs—a far more sophisticated investor base.
4. Borrowing End-Use Ambiguity: When an InvIT’s Net Borrowings exceed 49% of asset value, fresh borrowings are permissible only for “acquisition or development of infrastructure projects.” The scope of “development” was not defined, leaving open questions on whether refinancing of acquired SPV debt, routine maturity-driven refinancings, major maintenance capex, or capacity augmentation expenditures qualified under this head.
Analysis of the Proposed Measures
1. Continuing SPV Investment Post-Concession (InvITs Only)
| Proposal | Amend the definition of ‘SPV’ in Regulation 2(1)(zy) to preserve SPV status for companies or LLPs holding PPP projects whose concession agreements have concluded or been terminated, subject to conditions and enhanced disclosures. |
The proposed proviso introduces a carve-out: expiry or termination of a concession agreement will not automatically strip an entity of its SPV classification, provided the Investment Manager complies with prescribed exit and disclosure conditions.
Key conditions include: (a) the Investment Manager must exit the investment—through sale, liquidation, or wind-up—or acquire a new infrastructure project within one year of the later of concession completion/termination, resolution of all pending claims/litigations, or expiry of the defect liability period; (b) detailed annual report disclosures at both InvIT and SPV levels, covering asset-liability positions, contingent liabilities, debt repayment schedules, pending statutory obligations, and a clear exit timeline.
2. Expanding Liquid Mutual Fund Investment Scope (REITs and InvITs)
| Proposal | Amend Regulation 18(5)(i) of the REIT Regulations and Regulation 18(5)(b)(vii) of the InvIT Regulations to permit investment in liquid mutual fund schemes with a CRV of 10 or above (AA-rated and above), encompassing both Class A-I and Class B-I categories of the PRC matrix. |
The PRC matrix calibrates credit and interest rate risk across a 3×3 grid. Class A-I (CRV ≥12, MD ≤1 year) captures schemes holding predominantly AAA or sovereign paper. Class B-I (CRV ≥10, MD ≤1 year) additionally includes AA-rated instruments, widening the investable universe to 38 qualifying schemes—representing the bulk of the Rs. 5.51 lakh crore liquid fund market—without extending into Class C (CRV <10, which covers A-rated and below instruments) territory.
3. Greenfield Investment Access for Private InvITs (InvITs Only)
| Proposal | Amend Regulation 18(4) of the InvIT Regulations to permit privately listed InvITs to invest up to 10% of InvIT asset value in pure greenfield (under-construction) projects, aligning them with publicly listed InvITs. |
Currently, a privately listed InvIT must deploy at least 80% in ‘eligible infrastructure projects’—a definition that excludes pure greenfield projects that have not met the 50-50 test (50% construction completion or 50% capital cost expended). The residual 20% is available for specified liquid instruments, but not for greenfield. The proposed amendment references sub-clause (i) of clause (b) of Regulation 18(5) in the private InvIT investment framework, effectively unlocking the same 10% greenfield sub-limit that public InvITs already enjoy within their 20% bucket.
4. Expanded Permitted Uses of Borrowings Above the 49% Threshold (InvITs Only)
| Proposal | Amend Regulation 20(3)(b)(ii) to broaden permissible end-uses of fresh borrowings when Net Borrowings exceed 49%, by adding an enabling clause allowing SEBI to specify additional uses, and through circulars, clarify that refinancing, capex, and major maintenance qualify. |
Three categories of permissible use are proposed to be clarified:
1. Refinancing. Debt Refinancing: Both acquisition-linked refinancing (replacing SPV debt with InvIT-level debt post-acquisition) and routine refinancing (on maturity or for better terms) will qualify, provided: (a) there is no net increase in aggregate consolidated borrowings; and (b) only the principal amount is refinanced (accrued interest and fees are excluded).
2. Capex. Capital Expenditure for Enhancement or Capacity Augmentation: Capex to enhance asset performance or expand capacity of existing infrastructure assets will be treated as ‘development’ and thus a permissible end-use.
3. Major Maintenance. Major Maintenance (Road Projects): Given the unique accounting treatment of road assets (booked as intangibles under Ind AS 38, with no ownership rights over the land or road), MM expense that is non-routine and required under concession agreements will specifically qualify. This corrects an asymmetry with renewable energy and airport assets where similar expenditure is capitalizable.
Way Forward
These proposals, taken together, represent a meaningful step toward operational maturity for India’s listed infrastructure and real estate trust markets.
What Works Well
1. The SPV carve-out elegantly solves a structural problem that was always going to arise as the earliest InvIT concessions began rolling off. The one-year exit runway (measured from the latest of several potential trigger events) is commercially realistic, and the disclosure framework—while detailed—is proportionate to the risk being managed.
2. Expanding the liquid mutual fund universe to Class B-I (CRV ≥10) is a sensible, measured calibration. AA-rated paper does not represent a material credit deterioration, and the expanded pool significantly mitigates the concentration risk that had made treasury management unnecessarily cumbersome.
3. The greenfield access parity for private InvITs removes an anomaly that made private vehicles less attractive for infrastructure sponsors who wished to retain some greenfield optionality post-listing.
Open Questions and Residual Risks
1. Exit Timeline Flexibility: The one-year exit window for post-concession SPVs starts from the last of several events—which, in heavily litigated sectors like roads or power, could be indefinitely delayed. SEBI should clarify whether extension applications will be possible, and on what grounds.
2. Refinancing Conditions—Interest Exclusion: The condition that only the principal portion of debt may be refinanced (excluding accrued interest and fees) may create practical difficulty where lenders bundle interest arrears into refinancing packages. Market participants should model their refinancing structures against this constraint.
3. ‘Development’ Definition Still Open: The Paper proposes circular-level clarification rather than a regulatory amendment to define ‘development’ comprehensively. This means the scope remains at SEBI’s discretion and subject to evolving interpretation—not ideal for transaction certainty.
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This Capital Market update is intended for general guidance only and does not constitute legal advice. For more information, please reach out to Shubham Sharma at 2636@cnlu.ac.in.
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