To make it easier to raise funds for infrastructure projects from capital markets, Sebi on Thursday proposed to relax its norms for Infrastructure Investment Trusts (InvITs) by lowering the sponsors' mandatory holding to 10 per cent and by allowing greater operational flexibilities.
Under the proposed norms for InvITs, a new investment product for arranging long-term financing for infrastructure projects, Sebi has suggested allowing such trusts to invest in two-level SPV (special purpose vehicle) structure.
Currently, InvITs can either hold infrastructure assets either directly or through an SPV, in which such a trust holds control. It has been now proposed to allow InVITs to invest in a holding company which would further invest in other SPVs.
The move is expected to address concerns related to tax inefficiencies, lender considerations, difficulties in exit for financial investors, which may arise if a holding company investment is not allowed.
Current norms also provide for sponsors of an InvIT to hold minimum 25 per cent stake for at least three years, which Sebi has proposed to lower to 10 per cent.
A final decision would be taken after looking into the public comments on the proposed changes.
Issuing a discussion paper for amendments to InvIT Regulations, 2014, the capital markets watchdog has invited comments from all stakeholders till September 6.
The changes have been proposed to make it more attractive for the sponsors to float such vehicles.
Sebi, in September last year, had notified its norms for InvITs thereby providing a regulatory framework for registration and regulation of such trusts in the country.
The infrastructure assets in India are usually held through different Special Purpose Vehicles (SPVs), where the promoters of such SPVs create separate holding companies (Holdcos) which in turn hold stake in the underlying SPVs.
Thus, the sponsors may have separate Holding Companies which hold multiple SPVs that have projects of a particular category.
Sebi has suggested allowing InvITs to invest in a holding company which would further invest in other SPVs.
However, the proposal is subject to certain conditions like such trusts would have to hold controlling stake, not less than 50 per cent stake, in the holding company and this holding company would in turn hold controlling stake in underlying SPV.
The investment manager would have to ensure that in every meeting including annual general meeting of the underlying SPV, the voting of the HoldCo is exercised.
The industry has favoured such two-level SPV structure as a large proportion of the infrastructure projects in the country are financed by financial institutions on a project finance basis where lenders require a pledge on the shares of the SPV.
In such cases, if the SPV is held directly by the InvIT, the lenders would want pledge of SPV shares held by the trusts, which may not be attractive for investors.
In addition, the stakeholders have favoured for lowering the sponsors' mandatory holding to 10 per cent as requirement for sponsors to hold 25 per cent stake in InvIT may limit the monetisation and reduce release of capital for such sponsors and may not be lucrative for the existing set of sponsors.
"Further, in certain circumstances this may lead to sponsor putting money, out of its own pocket, in the InvIT so as to maintain the required 25 per cent stake. This would be very onerous at the part of the sponsor," the paper suggested.
The government, in the Budget for 2014-15 has provided various provisions in the Income Tax Act with respect to InvITs. Further, in the budget for 2015-16, government provided clarity on certain other tax aspects such as clarity on capital gains and MAT for such trusts.