SEBI proposes unitholders council for REITs
The market regulator Securities and Exchange Board of India (SEBI) has put forward proposals to strengthen corporate governance norms for Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs). SEBI aims to provide special rights to unitholders, allowing them to nominate representatives on the boards of these investment vehicles. This move is intended to empower unitholders and enhance their ability to monitor their investments and participate in decision-making processes.
SEBI’s proposals also include the introduction of self-sponsored REITs and InvITs. This concept would enable mature and independent professional managers to emerge, providing an additional exit option for the sponsor. Currently, the rules governing REITs and InvITs do not explicitly allow for the granting of special or additional rights to unitholders. SEBI suggests that unitholders holding a minimum of 10% of units should be entitled to nominate a director on the board of the manager or investment manager. To avoid creating overly large boards, an alternate option is proposed, which involves the establishment of a distinct unitholders council with members nominated by unitholders holding a minimum of 10% of units.
REITs and InvITs were introduced in India to offer investors the opportunity to invest in real estate and infrastructure projects, respectively, while diversifying risks through pooling arrangements. REITs focus on investing in finished and income-generating real estate assets, while privately placed InvITs have the flexibility to invest in both under-construction and completed assets.Public InvITs typically invest in completed and revenue-generating assets.
SEBI has opened a consultation period for public comments on these proposals, which will remain open until May 29. By granting special rights and introducing the concept of self-sponsored REITs and InvITs, SEBI aims to enhance corporate governance standards and strengthen the oversight and involvement of unitholders in these investment vehicles.
