Sebi issues framework for privately placed InvITs to issue subordinate units

May 30, 2024: The Securities and Exchange Board of India (Sebi) has updated the Infrastructure Investment Trust (InvIT) regulations to permit the issuance of subordinate units by privately placed InvITs. These units can be issued exclusively to the sponsors, their associates, and the sponsor group when acquiring an infrastructure project. However, the total issuance cannot exceed 10% of the acquisition price. A sponsor is the entity responsible for setting up an InvIT. Additionally, the total number of outstanding subordinate units must also remain below the 10% cap.

These amendments, approved by Sebi in a board meeting held in March, have now been officially notified and are effective as of the framework shared on the regulator’s website on May 28. The specific conditions for issuing these subordinate units are as follows:

• Subordinate units are only issued to the sponsor, its associates, and the sponsor group, and are considered part of the payment for acquiring the infrastructure project from these entities.
• These units do not carry voting or distribution rights.
• They must be issued in dematerialized form with a unique International Securities Identification Number, distinct from ordinary units.
• They will be listed on a recognised stock exchange after being reclassified into ordinary units, according to regulatory provisions.
• Subordinate units can be issued through an initial offer or subsequent offers, with or without the issuance of ordinary units.
• Issuing subordinate units after the initial offer requires approval from unitholders, with at least one and a half times more votes in favor than against. Any unitholder involved in the project acquisition, including the sponsor, its associates, and sponsor group, cannot vote.
• The price of subordinate units must follow the same pricing guidelines as ordinary units.
• The amount issued at the time of acquisition must not exceed 10% of the acquisition price.