SEBI (InvIT) Regulations, 2014

SEBI (InvIT) Regulations, 2014 (Part 1)

Introduction to InvITs: Infrastructure Investment Trusts (InvITs) are a mechanism to alleviate the burden on the banking system by providing fresh capital for the infrastructure sector.
Definition of InvIT: An InvIT is a Collective Investment Scheme similar to a mutual fund, which enables direct investment of money from individual and institutional investors in infrastructure projects to earn a certain portion of the income as return.
Key Players:
- Sponsor: A company/LLP/body corporate that sets up the InvIT, with a net worth of not less than Rs. 100 crore and sound track record in development of infrastructure or fund management.
- Investment Manager: A company/LLP/body corporate that manages assets and investments of the InvIT, with a net worth of not less than Rs. 10 crore and at least 5 years of experience in fund management or advisory services.
- Project Manager: A company/LLP/body corporate responsible for achieving execution/management of the project.
- Trustee: A person who holds the InvIT assets in trust for the benefit of the unit holders, registered with SEBI and not an associate of the sponsor(s) or Investment Manager.
InvIT Structure: The structure of InvIT is similar to that of a Mutual Fund, with a Trustee company, Sponsor, and Investment Manager.
InvIT Assets: Assets owned by the InvIT, whether directly or through a holdco and/or SPV, and includes all rights, interests, and benefits arising from and incidental to ownership of such assets.
Regulations: SEBI (Infrastructure Investment Trusts) Regulations, 2014 provide a regulatory framework for registration and regulation of InvITs in India, including conditions for making a public offer and private placement, initial and continuous disclosures, investment conditions, unit-holder approval requirements, and related party disclosures.

SEBI (InvIT) Regulations, 2014 (Part 2)

Investment Management Agreement: An agreement between the trustee and the investment manager that outlines the roles and responsibilities of the investment manager towards the InvIT.
Project Implementation Agreement: An agreement between the project manager, the SPV, and the trustee that sets out the obligations of the project manager with respect to the execution of the project and/or management.

Key Terminologies

Holdco (Holding Company): A company or LLP in which the InvIT holds or proposes to hold a controlling interest and not less than 51% of the equity share capital or interest.
Unit: Beneficial interest of the InvIT.
Unit Holder: Any person who owns units of the InvIT.
Completed and Revenue-Generating Project: An infrastructure project that has achieved commercial operations date, received all requisite approvals, and has been generating revenue for at least one year.
Concession Agreement: An agreement between a person and a concessioning authority for the implementation of a project.
Concessioning Authority: The public sector concessioning authority in PPP projects.
Eligible Infrastructure Project: A project that satisfies certain conditions, including being a completed and revenue-generating project or a pre-COD project.
Institutional Investor: A qualified institutional buyer, family trust, or systematically important NBFC with a net worth of more than Rs 500 crores.
PPP Project: An infrastructure project undertaken on a public-private partnership basis.
Pre-COD Project: An infrastructure project that has not achieved commercial operation date but has achieved at least 50% completion or expended at least 50% of the total capital cost.
Related Parties: Parties to the InvIT, promoters, directors, and partners of the parties to the InvIT.
SPV (Special Purpose Vehicle): A company or LLP in which the InvIT or holdco holds or proposes to hold a controlling interest and not less than 51% of the equity share capital or interest.
Under-Construction Project: An infrastructure project that has not achieved commercial operation date or has achieved commercial operation date but does not have a track record of revenue from operations for at least one year.
Valuer: A registered valuer under the Companies Act, 2013 or as specified by SEBI.
Value of the InvIT Assets: The value of assets of the InvIT as assessed by the valuer.

Registration and Eligibility Requirements

Application for Registration: An application for grant of certificate of registration as InvIT shall be made by the sponsor on behalf of the trust in the specified form and accompanied by a non-refundable application fee.
Conditions for Registration: The proposed activities should be clearly described, parties to the InvIT should be fit and proper persons, and the trust deed should have its main objective as undertaking the activity of InvIT.
Granting of Registration Certificate: SEBI shall grant a certificate of registration if the applicant fulfils the requirements and pays the requisite fees.

Rights and Responsibilities of Parties to an InvIT

Trustee: The trustee shall hold the InvIT assets, enter into an investment management agreement, oversee activities of the investment manager, and ensure compliance with regulations.
Investment Manager: The investment manager shall manage the investments of the InvIT, comply with reporting and disclosure requirements, and convene meetings of unit holders.
Project Manager: The project manager shall execute the project and/or manage it, comply with the project implementation agreement, and obtain compliance certificates from the trustee.

SEBI (InvIT) Regulations, 2014 (Part 3)

Trustee Responsibilities: The trustee may appoint an administrator for an infrastructure project, ensure the InvIT's activity is operated in accordance with the trust deed and regulations, and inform the Board of any act detrimental to unit holders' interests.
Investment Manager Roles: The investment manager is responsible for making investment decisions, overseeing project manager activities, obtaining compliance certificates, ensuring proper legal titles for infrastructure assets, and arranging for adequate insurance coverage.
Key Investment Manager Responsibilities:
- Make investment decisions for underlying assets or projects
- Oversee project manager activities for compliance with InvIT Regulations
- Obtain compliance certificates from the project manager on a quarterly basis
- Ensure infrastructure assets have proper legal titles
- Arrange for adequate insurance coverage
- Ensure adequate infrastructure and sufficient key personnel
- Appoint valuers, auditors, and other intermediaries
- Declare distributions to unit holders
- Review transactions between the project manager and its associates
Project Manager Responsibilities:
- Undertake operations and management of the InvIT
- Oversee progress of under-construction projects
- Discharge obligations for timely completion of project implementation agreements
Sponsor Responsibilities:
- Set up the InvIT and appoint trustees
- Transfer shareholding or interest in holdco, SPV, or infrastructure projects to the InvIT
- Collectively hold at least 15% of outstanding units for 3 years from listing
Valuer Responsibilities:
- Ensure impartial, true, and fair valuation of InvIT assets
- Maintain adequate internal controls and key personnel
- Ensure sufficient financial resources and independence
- Conduct valuations with transparency and fairness
Auditor Responsibilities:
- Conduct audits of InvIT accounts and draft audit reports
- Ensure true and fair view of InvIT's state of affairs
- Have access to books of accounts and vouchers
- Require necessary information and explanations for audit duties

SEBI (InvIT) Regulations, 2014 (Part 4)

Definition: The SEBI (InvIT) Regulations, 2014, provide a framework for Infrastructure Investment Trusts (InvITs) to raise funds through public issues or private placements.
Details: InvITs can raise funds through an Initial Public Offer (IPO) or through Private Placement.

Key Concepts

Fund Raising: InvITs can raise funds through an IPO or private placement, with the option to make subsequent issues through follow-on offers, preferential allotment, qualified institutional placement, rights issue, bonus issue, or offer for sale.
IPO Requirements: To make an initial offer of units, an InvIT must:
- Be registered with SEBI
- Have a minimum asset value of Rs. 500 crore
- Have a minimum offer size of Rs. 250 crore
Minimum Public Unitholding: The minimum offer and allotment to the public through an offer document/placement memorandum shall be:
- At least 25% of the total outstanding units of the InvIT, if the post-issue capital is less than Rs. 1600 crore
- At least Rs. 400 crore, if the post-issue capital is between Rs. 1600 crore and Rs. 4000 crore
- At least 10% of the total outstanding units of the InvIT, if the post-issue capital is Rs. 4000 crore or more

Subscription and Allotment

Minimum Subscription: The minimum subscription amount from any investor in an initial and follow-on offer shall be within the range of Rs. 10,000 to Rs. 15,000.
Maximum Subscription: The maximum subscription from any investor should not be more than 25% of the total unit capital, excluding sponsor(s), its related parties, and its associates.
Allotment: Units shall be allotted only in dematerialized form, and in case of oversubscription, the InvIT shall allot units to applicants on a proportionate basis.

Listing and Refunding

Listing: The units should be mandatorily listed on a stock exchange within 6 working days of the close of the issue in case of publicly offered units.
Refunding: In case of under-subscription, subscription money shall be refunded to all applicants if at least 90% of the fresh issue size is not received.

Offer Document

Contents: The offer document shall include all information as specified under Schedule III of the SEBI InvIT Regulations, including:
- Basic details of the InvIT
- Details of the sponsor, investment manager, project manager, trustee, and other parties
- Background of the InvIT, including structure and credit ratings
- Terms of issue, including number of units, price, and distribution policy
Due Diligence Certificate: A due diligence certificate signed by the lead merchant banker shall accompany the draft offer document and offer document.

Private Placement

Process: InvITs shall file a draft placement memorandum with SEBI and stock exchange(s) through a merchant banker not less than thirty days prior to opening of the issue.
Placement Memorandum: The placement memorandum shall contain all information as specified under Schedule III, to the extent applicable.
Due Diligence Certificate: The merchant banker shall submit a due diligence certificate.
SEBI Observations: SEBI shall issue observations, if any, on the placement memorandum within 15 days of filing.

SEBI (InvIT) Regulations, 2014 (Part 5)

Listing and Trading: Units shall be listed within 6 working days of the close of the Issue. The trading lot shall be of ONE unit of Rs. 25 lakh or ONE Unit of Rs. 2 crores, in cases where a minimum 80% of the value of the InvIT Assets shall be invested in completed and revenue-generating projects.
Minimum Investment and Investors: Minimum investment from any investor shall be of Rs. 1 crore. The minimum number of investors shall not be less than 5 and the maximum number shall not be more than 1000 investors.
Preferential Offer /Institutional Placement: A listed InvIT can make a preferential offer only to Institutional Investors, as defined under InvIT Regulations.
Listing Conditions: It shall be mandatory for units of all InvITs to be listed on a recognized stock exchange having nationwide trading terminals, whether publicly issued or privately placed.
Delisting of Units: The investment manager shall apply for delisting of units of the InvIT to SEBI and the Stock Exchanges if the public holding falls below the specified limit, the number of unit holders of the InvIT falls below the limit of 20, or no projects or assets are remaining under the InvIT for a period exceeding six months.

Key Concepts

Approval for Listing: File the final placement memorandum with SEBI within a period of ten working days from the date of listing of the units issued therein.
Conditions Post Listing: The InvIT shall redeem units only by way of a buyback or at the time of delisting of units. The units shall remain listed on the designated Stock Exchanges unless delisted.
Delisting Procedure: The procedure for delisting of units of InvIT including provision of exit option to the unit holders shall be in accordance with the listing agreement and in accordance with procedure as may be specified by SEBI and by the designated stock exchanges from time to time.
Effect of Delisting: The InvIT has to surrender its certificate of registration to SEBI. The InvIT shall no longer undertake activity of an InvIT.

Issuance of Debt Securities

Applicable Regulations: InvITs shall follow the provisions of SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (“NCS Regulations”) for the issue of debt securities.
Debenture Trustees: For the issuance of debt securities, InvITs shall appoint one or more debenture trustees registered under SEBI (Debenture Trustees) Regulations, 1993.
Security Creation: Any secured debt securities issued by InvITs shall be secured by the creation of a charge on the assets of the InvIT or holdco or SPV, having a value which is sufficient for the repayment of the amount of such debt securities and interest thereon.

Borrowings

Aggregate Consolidated Borrowings: The aggregate consolidated borrowings cannot exceed 70% of the value of the InvIT Assets.
Credit Rating and Approval: If the borrowings are between 25% to 49% of the value of the InvIT Assets, then a credit rating and approval of the Unit holders are required.
Utilization of Funds: If the borrowings are between 49% and up to 70% of the value of InvITs, then the funds shall be utilized only for the acquisition or development of infrastructure projects.

Valuation of Assets

Condition for a Valuer: The valuer shall not be an associate of the sponsor(s) or investment manager or trustee and shall have not less than five years of experience in valuation of infrastructure assets.
Valuation Report and Submission: A full valuation report shall include the mandatory minimum disclosures as specified in Schedule V to the Regulations. The valuation reports have to be filed by the Investment Manager within 15 days from the receipt of the Reports.
Frequency of Valuation: A full valuation shall be conducted by the valuer once in every financial year. For publicly listed Units, the valuation has to be conducted every 6 months and completed within one month of the end of each half year.

Investment Conditions

Investment by an InvIT: The investment by an InvIT shall only be in Holding company and/ or SPVs or infrastructure projects or securities in India.
Investment in Infrastructure Projects: The InvIT may invest in infrastructure projects through SPVs subject to certain conditions.
Dispute Resolution: The shareholders’ agreement or partnership agreement shall provide for an appropriate mechanism for the resolution of disputes between the InvIT and the other shareholders or partners in the holdco and/or the SPV.

Other Significant Matters

Related Party Transactions: All related party transactions shall be on an arm's-length basis in accordance with relevant accounting standards and shall be disclosed in the offer document or placement memorandum.
Post Listing - Prior Approval of Unit Holders: Prior approval of Unit holders is necessary if the total value of all the related party transactions, in a financial year, pertaining to acquisition or sale of assets or investments into securities exceeds 5% of the value of InvIT assets.
Rotation of Auditors: No Valuer shall undertake valuation for the same Project for more than 4 years consecutively.
Dispute Resolution: Disputes between the investors and the Investment Manager are subject to a resolution mechanism that includes mediation and/or conciliation and/or arbitration, in accordance with the procedure specified SEBI.
Continual Disclosures to the Stock Exchange: The investment manager of all InvITs shall submit an annual report to all unit holders electronically or by physical copies and to the designated stock exchanges within 3 months from the end of the financial year.
Event-Based Disclosure: Some disclosures which are event-based are listed below, including acquisition or disposal of any projects, additional borrowing, and details of any credit rating obtained by the InvIT.
Maintenance of Records: The investment manager shall maintain the following records in electronic form, including all investments or divestments of the InvIT, agreements entered into by the InvIT, and documents relating to appointment of Trustee, Registrar, etc.

SEBI (InvIT) Regulations, 2014 (Part 6)

Disclosures: All registered Merchant Bankers must disclose the Investor Charter for Public Offer and Private Placement of units by InvITs, and investor complaints and redressal on their websites by the 7th of the succeeding month.
Investor Disclosures: The Investment Manager must submit annual reports, half-yearly reports, and valuation reports to unit holders, and disclose acquisitions or disposals of projects, additional issue of units, credit ratings, and any material issues.

Key Concepts

Post Listing Compliance: The Investment Manager must comply with SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR).
Board Composition: The InvIT Board must have a minimum of 6 Directors, including one woman Independent Director, with a quorum of one-third of its total strength or three directors.
Nomination Rights: Unitholders holding 10% or more of the total outstanding units have the right to appoint a Nominee Director on the Board of Directors of the Investment Manager.
Vigil Mechanism: The Investment Manager must formulate a vigil mechanism, including a whistle-blower policy for directors and employees to report genuine concerns.
Secretarial Compliance Report: A secretarial compliance report must be filed with the stock exchanges within 60 days from the end of each financial year and annexed to the Annual Report.
Inspection by SEBI: SEBI has the power to conduct inspections on the activities of InvIT, and the outcome may require the InvIT to delist its units, wind up, sell its assets, or take other actions.

Review Questions

InvIT Assets: Assets owned directly or through holdco or SPV.
Investment Manager: Must have at least 2 key personnel with more than 10 years of experience in the infrastructure sector.
Delisting of InvIT: Can take place when a request for delisting has been made by the unit holders.
Valuer for InvIT: Must have experience of at least 5 years in valuation of infrastructure assets.