Context: Securities and Exchange Board of India (SEBI) has proposed a framework for undertaking fast-track follow-on offers by real estate investment trusts (REITs) and infrastructure investment trusts (InVITs) to make fundraising more efficient.
Relevance of the Topic: Prelims: REITs, InVITs, Related key terms
REITs & InvITs:
- REITs: A real estate investment trust (REIT) is a company that owns, operates, or finances income-generating real estate (E.g., offices, malls, hotels) and sells shares to raise capital to do so. Allow investors to earn returns without owning physical property.
- InvITs: Infrastructure Investment Trusts (‘InvITs’) are pooled investment vehicles similar to mutual funds. InvITs enable private and retail investors for long-term investment in infrastructure projects such as roads, gas pipelines, transmission lines, renewable assets, etc. They are regulated by SEBI.
Read: InvITs (Infrastructure Investment Trust)
SEBI Proposal: Key Features
- Lock-In provisions for sponsors:
- 15% of units allotted to sponsors & sponsor group: Locked in for 3 years from trading approval date.
- Remaining units: Locked in for 1 year from trading approval date.
- Follow-On Public Offer (FPO) requirements:
- Application: To be made to all stock exchanges where units are listed.
- Designated Stock Exchange: One exchange must be chosen for coordination.
- Minimum public unit-holding: At least 25% of total outstanding units post-issue.
- Issuance restrictions:
- No further issuance of units (public issue, rights issue, preferential issue, etc.) between the draft filing and final listing, except through employee benefit schemes.
- Documentation & Approvals:
- Draft Follow-On offer document: Submitted via merchant banker to SEBI for observations.
- Final document: Filed after incorporating SEBI’s comments.
- Merchant Banker duties: Submit due diligence certificate along with draft document.
Significance of the Proposal
- Enhanced fundraising efficiency: Fast-track FPO mechanism reduces fundraising delays.
- Increased market confidence: Clear lock-in norms and compliance improve investor protection.
- Transparency: Improved financial disclosure aligns with public issue norms.
- Boost to Infrastructure & Real estate sectors: Facilitates smoother capital inflow into key sectors.
Related key terms
- Lock-In period: refers to that period for which investments cannot be sold or redeemed.
- Initial Public Offering (IPO):
- Refers to the process where private companies sell their shares to the public to raise equity capital from the public investors.
- It is the first time a company goes public.
- Follow-on public offer (FPO):
- FPO is a follow up to the IPO as the name suggests.
- A follow-on public offer is the issuance of shares after the company is listed on a stock exchange.
- Rights issue: When shares are issued to existing shareholders.
- Private Placement & Preferential issue: When shares are issued to a select group of Persons including members or employees.