Revising Pricing Strategies For Institutional Placements Of Privately Placed Infrastructure Investment Trusts (InvITs)

In a recent development, the Securities and Exchange Board of India (SEBI) has issued a circular, SEBI/HO/DDHS/DDHS-PoD/P/CIR/2024/10, dated February 08, 2024, introducing a revised pricing methodology for institutional placements of privately placed Infrastructure Investment Trusts (InvITs).[1] This move comes in response to industry requests, recommendations from the Hybrid Securities Advisory Committee (HySAC), and a broader effort to enhance the Ease of Doing Business in the sector.

Background

Regulation 14(4) of the SEBI (Infrastructure Investment Trusts) Regulations, 2014 (InvIT Regulations), allows for subsequent issuances of units after the initial public offering through various mechanisms, including institutional placements. The current pricing directives, as specified in Paragraph 7.9 of the SEBI Master Circular for Infrastructure Investment Trusts (InvITs) dated July 06, 2023, dictate that when it comes to institutional placements, InvITs must set a price that is equal to or higher than the average of the weekly highest and lowest closing prices of units belonging to the same class, as quoted on the stock exchange, in the two weeks leading up to the relevant date.

Revised Pricing Methodology

In response to the evolving landscape and the specific needs of privately placed InvITs, SEBI has reviewed and revised the pricing guidelines for institutional placements. Effective immediately, the floor price for institutional placements for privately placed InvITs will be the Net Asset Value (NAV) per unit of the InvIT. This shift is aimed at simplifying the pricing process, aligning it with the intrinsic value of the assets, and promoting a more business-friendly environment.

Key Modifications

Paragraph 7.9.1 Modification:

• The existing Paragraph 7.9.1 of the SEBI Master Circular for InvITs dated July 06, 2023, has been modified to reflect the new pricing approach for public InvITs. The revised paragraph states that institutional placements by public InvITs shall be made at a price not less than the average of the weekly high and low of the closing prices of units of the same class quoted on the stock exchange during the two weeks preceding the relevant date.
• Public InvITs, however, have the flexibility to offer a discount of not more than five percent on the calculated price, subject to the approval of unitholders through a resolution as specified in para 7.2.1.
•  The “relevant date” for institutional placements is defined as the date of the meeting in which the board of directors of the investment manager decides to open the issue.

Insertion of Paragraph 7.9.2:

A new addition to the SEBI Master Circular for InvITs is Paragraph 7.9.2, outlining the pricing methodology for institutional placements by privately placed InvITs. As per this new inclusion, institutional placements carried out by privately placed Infrastructure Investment Trusts (InvITs) must be established at a value equal to or exceeding the Net Asset Value (NAV) per unit. This valuation is determined through a comprehensive assessment of all current InvIT assets, conducted in accordance with the regulations outlined for Infrastructure Investment Trusts (InvITs).

Implementation and Applicability

The circular announcing these changes is effective immediately, signalling a prompt adaptation to the new pricing methodology. SEBI has exercised its powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992, and Regulation 33 of the InvIT Regulations to bring about this modification. The circular is available on the SEBI website under the “Legal” category and the “Circulars” dropdown.

Conclusion

This strategic move by SEBI to modify the pricing methodology for institutional placements of privately placed InvITs highlights its commitment to facilitating a more efficient and transparent market. The decision to peg the floor price for such placements to the NAV per unit reflects a practical approach that considers the true value of InvIT assets. This is expected to provide greater flexibility to privately placed InvITs, encouraging smoother institutional placements and ultimately contributing to the growth and dynamism of the infrastructure investment landscape in India.

In conclusion, these regulatory adjustments not only respond to industry demands and recommendations but also demonstrate SEBI’s proactive stance in ensuring a conducive environment for investment activities. As market participants acclimate to the revised pricing methodology, it is anticipated that the ease of doing business in the infrastructure investment sector will be significantly enhanced, promoting a more robust and investor-friendly ecosystem. Investors, InvITs, and other stakeholders are encouraged to stay well-informed of these regulatory updates and adapt their strategies accordingly to capitalize on the evolving landscape.

[1] https://www.sebi.gov.in/legal/circulars/feb-2024/revised-pricing-methodology-for-institutional-placements-of-privately-placed-infrastructure-investment-trust-invit-_81268.html