SEBI amends guidelines for institutional placement of units by InvITs, REITs (July 05, 2023)[1]

The Securities and Exchange Board of India (SEBI) has published a circular outlining changes to the rules for listed Real Estate Investment Trusts (REITs) preferential offering and institutional placement of units. SEBI has discussed the pricing for institutional placement of units in two different, but identically worded circulars published for InvITs and REITs. Clause 2 of Annexure II of the earlier SEBI guideline was modified to the effect that the price of the institutional placement should not be less than the average weekly high and low of the closing prices of the units of the same class quoted on the stock exchange during the two weeks before the relevant date. The regulator states that subject to the consent of the relevant unitholders, InvITs, and REITs may give a discount on the price of no more than 5%. The circular clarifies specific dates for institutional placement and adapts the unit pricing. A REIT is a trust formed under the Indian Trust Act of 1882 and registered under the Registration Act of 1908 with the primary objective of operating in the real estate investment industry in accordance with theSEBI (Real EstateInvestment Trusts), Regulations 2014 (REIT Regulations). Their sponsor, manager, and trustee are all different individuals. The REIT is established by the trust’s sponsor, its trustee is in charge of overseeing the entire entity and making sure that all regulations are followed, and its unitholders are its beneficiaries.The circular is applicable with immediate effect.

The purpose of this modification is to increase pricing transparency and flexibility for institutional placements. It helps to avoid excessive swings and offers a fair assessment for investors by taking into account the average price over a two-week period. By giving investors the choice to receive a discount, institutional placements may see increased investor interest. The circular makes clear that the amendments are taking effect straight away. REITs and other relevant parties are expected to comply with the new regulations while accomplishing preferential issues and institutional placements of units. The measures taken by SEBI to scrutinise and amend the rules on a regular basis reflect its dedication to sustaining an effective and transparent REIT market.

The clarifications and flexibility in unit pricing provided by the SEBI-introduced changes to the rules for preferential issues and institutional placement of units by listed REITs. The alterations are intended to increase REIT transparency and investor trust. To promote a just and effective market for REIT units, market participants should make sure that the updated rules are followed. It is also made clear that the term “relevant date” refers to the occasion on which the manager’s board of directors agrees to bring the matter to a vote. The criteria are now more in line with market trends and provide InvITs with greater flexibility when establishing prices. By enabling InvITs to use aggressive pricing tactics to entice institutional investors, SEBI’s revisions are intended to make it easier for them to raise cash effectively. With the help of the discount provision, InvITs have another weapon at their disposal to modify pricing in response to investor and market demand.

[1] Circular No.: SEBI/HO/DDHS-PoD-2/P/CIR/2023/113 (https://www.sebi.gov.in/legal/circulars/jul-2023/amendments-to-guidelines-for-preferential-issue-and-institutional-placement-of-units-by-a-listed-reit_73494.html ) and Circular No.: SEBI/HO/DDHS-PoD-2/P/CIR/2023/114.  (https://www.sebi.gov.in/legal/circulars/jul-2023/amendments-to-guidelines-for-preferential-issue-and-institutional-placement-of-units-by-a-listed-reit_73494.html)