In a recent consultation paper, the Securities and Exchange Board of India (SEBI) has proposed a series of regulatory changes aimed at easing operational and investment constraints for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).
The proposals are based on industry feedback and recommendations of SEBI’s Hybrid Securities Advisory Committee (HYSAC) and seek to align regulations more closely with the commercial realities of infrastructure and real estate investing.
InvITs may retain SPVs after concession expiry
One of the key proposals addresses a long-standing ambiguity around special purpose vehicles (SPVs) whose concession agreements have expired or been terminated.
SEBI has proposed amending the definition of an SPV to allow InvITs to continue holding such entities even after the underlying infrastructure project has reverted to the concessioning authority.
The development recognizes that SPVs often continue to face statutory, tax, litigation, and defect-liability obligations even after the end of the concession period, making immediate winding-up or divestment impractical.
Under the proposal, InvITs would be required to either exit such SPVs or acquire new infrastructure assets within one year, along with detailed SPV-level disclosures to unitholders.
Wider investment universe for liquid mutual funds
SEBI has also proposed expanding the scope of liquid mutual fund schemes in which REITs and InvITs can invest surplus funds.
Currently, investments are restricted to schemes with a credit risk value (CRV) of 12 or higher. The regulator now proposes lowering the threshold to a CRV of 10.
After this, REITs and InvITs can also invest in schemes holding limited exposure to AA+ and AA-rated corporate paper, while earlier they were allowed to invest only in liquid funds backed entirely by government and AAA-rated securities.
Industry associations had highlighted that only a handful of liquid funds currently meet the higher CRV threshold, increasing concentration risk.
Private InvITs may get greenfield exposure
Aiming to bring parity between publicly listed and privately listed InvITs, SEBI has proposed allowing private InvITs to invest up to 10% of their asset value in pure greenfield or under-construction infrastructure projects
At present, only public InvITs are permitted limited exposure to greenfield projects, while private InvITs, despite catering exclusively to institutional investors, are barred from such investments.
More flexibility in use of borrowings above 49%
Another significant proposal relates to leverage norms. When an InvIT’s net borrowings exceed 49% of asset value, fresh debt is currently permitted only for acquisition or development of infrastructure projects.
SEBI has now proposed to allow such borrowings to be used for refinancing existing debt, capital expenditure, capacity augmentation, and major maintenance, particularly for road projects
The regulator noted that refinancing is a routine feature of long-tenure infrastructure financing and that major maintenance is often mandatory under concession agreements.
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