News
Amendments to Master Circular on InvITs and REITs
The Securities and Exchange Board of India (SEBI) continues to refine the regulatory landscape for Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs). With the issuance of its Master Circulars on May 15, 2024, bearing reference nos. SEBI/HO/DDHS-PoD-2/P/CIR/2024/43 and SEBI/HO/DDHS-PoD-2/P/CIR/2024/44 respectively, SEBI had set forth specific lock-in provisions for sponsor-held units, ensuring stability and long-term commitment. However, recognizing the need for greater flexibility and ease of business, SEBI issued a Consultation Paper on February 20, 2025, proposing changes to these regulations.
Following industry feedback and recommendations from the Hybrid Securities Advisory Committee (HySAC), SEBI has now introduced key amendments via circulars issued on March 28, 2025, bearing reference numbers SEBI/HO/DDHS/DDHS-PoD-2/P/CIR/2025/44 and SEBI/HO/DDHS/DDHS-PoD-2/P/CIR/2025/43, respectively, for both InvITs and REITs. These amendments refine the lock-in requirements for preferential unit issues and establish a framework for follow-on offers (FPOs), aligning with global best practices.
Key Amendments to Lock-in Provisions
- InvITs:
Previous Lock-in Requirements (May 2024 Circular):
- Sponsors had to retain 25% of total units for three years from the date of trading approval.
- Units exceeding 25% were locked in for one year.
Amended Lock-in Requirements (March 2025 Circular):
- 15% of sponsor-held units must now be locked in for three years.
- The remaining units will be locked in for one year.
- If an InvIT’s project manager is not a sponsor or an associate of the sponsor, then the 25% lock-in rule applies instead of the 15% requirement.
Flexibility in Inter-se Transfers: SEBI now permits inter-se transfers of locked-in units among sponsor groups, provided the lock-in period remains unchanged for the transferee. In cases of sponsor exits or self-sponsored transitions, locked-in units can be transferred to incoming sponsors or self-sponsored investment managers while maintaining regulatory compliance.
- REITs:
Previous Lock-in Requirements (May 2024 Circular):
- Sponsors had to retain up to 25% of total units for three years from the date of trading approval.
- Units exceeding 25% were locked in for one year.
Amended Lock-in Requirements (March 2025 Circular):
- 15% of sponsor-held units must now be locked in for three years.
- The remaining units will be locked in for one year.
- Sponsors must comply with minimum unitholding requirements under SEBI (REIT) Regulations, 2014.
Inter-se Transfers Permitted: Similar to InvITs, REITs can now transfer locked-in units within sponsor groups, provided the original lock-in period remains applicable to the transferee. Transfers are also allowed in cases of sponsor changes or transitions to self-sponsored management structures.
New Framework for Follow-on Offers (FPOs): SEBI has introduced a structured regulatory framework for follow-on offers (FPOs), enabling publicly offered InvITs and REITs to raise additional capital efficiently. These guidelines include:
- Public issue norms now apply to FPOs, ensuring a minimum public unitholding of 25% post-issue.
- Mandatory in-principle approvals from stock exchanges and issuance of dematerialized units.
- Provisions covering allotment procedures, listing timelines, due diligence requirements, and compliance checks.
The 2025 amendments mark a significant shift in SEBI’s regulatory approach, aimed at enhancing capital-raising flexibility for InvITs and REITs while maintaining market stability. By reducing sponsor lock-in requirements and allowing inter-se transfers, these updates align with international investment standards and provide issuers with more strategic flexibility. As the industry adapts to these progressive changes, SEBI’s ongoing engagement with market participants will ensure that InvITs and REITs continue to be viable and attractive investment vehicles in India’s financial landscape.
