Indian regulator launches infra trust charm offensive

The country’s capital market watchdog is looking to pave a smoother path for domestic institutions to invest in the REIT and infra trust markets, which it says could grow to a combined $25bn in a year.

The Securities and Exchange Board of India is planning to launch a new set of guidelines that will make it easier for domestic institutional investors to enter the listed trust market. 

Gurumoorthy Mahalingam, a whole-time member of the SEBI, said at an event last Friday that the board was working with the Insurance Regulatory and Development Authority of India and the Home Pension Fund Regulatory and Development Authority on drafting the guidelines. The aim, he added, was to encourage capital inflows from the likes of insurers and pension funds into Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). 

He estimated that the REITs and InvITs markets could grow to a combined $25 billion in a year, thereby allowing them to become more attractive to foreign capital, according to Indian news agency Press Trust of India.   

The announcement follows amendments to InvIT regulations last September. Changes included allowing the trusts to invest in special purpose vehicles through holding companies and requiring the latter to distribute all cash flows realised from the SPVs and at least 90 percent of the remaining cash flows to their shareholders. 

SEBI also reduced the mandatory sponsor holding in the trusts to 15 percent, removed the limit on the number of trusts sponsors and rationalised requirements for private placement of InvITs. 

InvITs, which have a similar structure to REITs, are a product designed to help developers get easier access to funds through listing their existing, income-generating assets on Indian stock exchanges. The structure was introduced by SEBI in 2014, but it was not until May 2016 that the regulator released the final set of rules allowing companies to start marketing their trusts. 

Indian road developer IRB Infrastructure Developers filed its application in September for listing the first-ever InvIT in India, followed by Reliance Infrastructure’s RInfra InvIT and Sterling Power’s India Grid Trust last month. The three trusts, yet to be listed, aim to raise a combined 99.5 billion rupees ($1.46 billion; €1.39 billion) from institutional and individual investors.