The Securities and Exchange Board of India’s (SEBI’s) move, to allow Infrastructure Investment Trusts (InvIT) and Real Estate Investment Trusts (REITs) to raise bonds, will improve cash flows and simplify the structure, according to ICRA. “The surplus from all the SPVs (special purpose vehicles) can be upstreamed to the respective InvIT/REIT. This can, then, be utilised to service the bonds and the balance can be distributed to the unitholders,” ICRA vice-president and sector head (corporate ratings) Shubham Jain said.
“However, for this to be put to practice, the Indian Trusts Act needs to be amended accordingly,” he added. This amendment would also lead to tax efficiencies, as the InvITs/REITs can now issue bonds at a lower cost and lend to SPVs with some margins. SEBI board has also permitted the REITs to lend to the underlying holding companies (holdcos) and SPVs, which Jain said, would provide more flexibility to the REITs in managing the short-term funding requirements across its holdcos and SPVs.
Further, SEBI has permitted single asset REITs, as against the earlier requirement of investing in at least two properties, with no more than 60 per cent of the total asset value invested in one property. “This change could enable a larger pool of developers to access the REIT market. Nonetheless, the market appetite for such single asset offerings remains to be seen, given that one of the key benefits expected of the REITs is the diversification of underlying assets and cash flows,” Jain added.