CS Professional:Corporate Funding & Listing in Stock Exchanges [Ch-3 Infrastructure Investment Trusts]

InvITs 

Collective Investment Scheme similar to a Mutual Fund enabling Direct Investment in Infrastructure Projects.governed by SEBI (InvITs) regulations,2014. 

also treated as the modified version of REITs designed to suit the specific circumstances of the infrastructure sector. The purpose of InvITs is to encourage and provide additional financing for the infrastructure sector. long term cap supporting diversification of ownership of infrastructure assets such as power transmission, roads, ports, renewable projects.

they take some time to generate steady cash flows but InvITs helps co. to fulfill their debt obligations. pvt. trust formed under Indian Trusts Act,1882 and registered under Registrations Act & SEBI.

as on 31/03/2021,Following InvITs registered with SEBI:

1. IRB InvIT Fund 
2. MEP Infrastructure Investment Trust 
3. India Grid Trust 
4. India Infrastructure Trust 
5. Tower Infrastructure Trust 
6. Digital Fibre Infrastructure Trust 
7. Oriental Infra Trust
8. Ind Infra Vit Trust 
9. IRB Infrastructure Developers Limited 
10. Indian Highway Concession Trust 
11. National Highways Infra Trust 
12. Roadstar Infra Investment Trust
13. POWERGRID Infrastructure Investment Trust 
14. Shrem InvIT
15. Virescent Renewable Energy Trust

INVESTOR'S BENEFIT

Listing and trading of units as permissible security on recognised stock exchanges in International Financial Service Centers (IFSC) permitted by SEBI vide a circular dated 16/09/2020

permissible jurisdictions and International Exchanges:

1. United States of America - NASDAQ, NYSE 
2. Japan - Tokyo Stock Exchange 
3. South Korea - Korea Exchange Inc. 
4. United Kingdom excluding British Overseas Territories-London Stock Exchange 
5. France - Euronext Paris 
6. Germany - Frankfurt Stock Exchange 
7. Canada - Toronto Stock Exchange

The promoter differs from a sponsor as they have control over the issuer's affairs or in accordance with whose advice,directions or instructions board is accustomed to acting. not a person acting in a professional capacity.

An individual cannot be a sponsor.

financial institution, scheduled commercial bank, mutual fund, venture capital fund, alternative investment fund, foreign venture capital investor, insurance company or any other category specified by the SEBI, shall not be deemed a promoter merely by virtue that twenty per cent or more of equity held by such person unless they satisfy other requirements prescribed.

 SEBI (InvITs) REGULATIONS, 2014 

• notified on 26/09/2014
• providing a positive push to Indian Cap Markets and Infrastructure Sector
• creates liquidity and opportunity to invest in Indian Stabilized market

 DEFINITIONS 

1. completed and revenue generating projects: prior to acquisition
• achieved commercial operations under agreement
• received all approvals and certifications
• revenue generation for a year/more
2. Concession Agreement/Authority
3. Eligible Infrastructure Project
4. holdco/holding co.
5. Inducted Sponsor
6. Infrastructure
7. InvIT assets
8. Infrastructure Developer: lead member of SPV concessionaire
9. Institutional investor
• QIBs
• family trust/SI-NBFCs of net worth 500 cr./more
10. PPP project: project undertaken on public-private partnership between public concessioning authority and pvt SPV concessionaire per open competitive bidding/MoU.
11. Pre-COD project:
• not yet achieved commercial operation under relevant agreement
• completed at least 50% construction certified by an independent engineer
• expanded 50%/more of total cap cost
12. Related Parties including promoters,directors and partners of InvIT parties
13. SPV/Special Purpose Vehicle in which InvIT holds controlling interest
14. under-Construction Projects which have achieved commercial operation date and don't have the track record of revenue for 1 year/more
15. Valuer in co. act,2013/SEBI
16. InvIT assets value

InvIT STRUCTURE

 ELIGIBILITY CRITERIA  

• certificate of registration on application made by sponsor as prescribed.
• parties are fit and proper persons
• APPLICANTS
• sponsor
• trust deed registered in India clearly containing undertaking activity as main activity and trustee responsibilities.
• SPONSORS
• Net Worth (NW) of at least 100 crores and (NTAs) Net Intangible Assets of 100 crores in case of LLP.
• min. experience of at least 5 years and completed at least 2 projects.
• INVESTMENT MANAGER (IM)
• NW/NTAs of at least 10 crores
• Minimum experience of 5 years in fund management/advisory services/ development in infrastructure sector/combined experience of the directors/partners/employees of the investment manager in fund management or advisory services or development in the infrastructure sector is not less than 30 years.
• 1/2 OR more directors/members should be independent and shouldn't be members/directors of another InvIT
• entered into investment mgmt. agreement with trustee
• PROJECT MANAGER (PM)
• identified/appointed in terms of implementation/mgmt
• agreement submitted along with a draft offer doc/placement memorandum.
• TRUSTEES
• registered with SEBI and not an sponsor/IM
• have sufficient resources
• hold InvIT assets in trust for benefit of unitholders
• no holder enjoys superior voting rights over another and no multiple classes
• subordinate units issued only to sponsors/associates carrying only inferior voting rights 
• whether any previous application made has been rejected
• whether any disciplinary action has been taken by a regulatory authority

UNITS OFFER/LISTING

1. no IPO unless-
• registered with SEBI
• asset value=500 cr./more
• specific portion of InvIT holding
• complied anytime before allotment subject to respective agreements
• offer size=250 cr./more
• min. offer/allotment through an offer do/placement memo
• at least 25% of the total outstanding, if (PIC) Post Issue Cap @ offer price is <1600 crs.
• at least 400 crores, if 1600<PIC<4000 crs.
• at least 10% of total outstanding units, if PIC>/= 4000 crs.
• not public offer if offered to sponsor/IM/PM/related parties/associates
2. PRIVATE PLACEMENT
• through placement memo
• RBI guidelines in case of foreign investors
• minimum investment=1 crore
• proposes to invest not less than 8 percent of the value of the InvIT assets in completed and revenue generating assets, the minimum investment from an investor shall be Rs. 25 crores.
• maximum investment in initial offer= <25 crs.
• 5-1000 investors
• file placement memo 5 days prior to issue opening,which shall not be later than 3 months of in-principle approval
• final placement memo filed with SEBI within 10 working days from listing
3. PUBLIC ISSUE
• by IPO
• subsequent issue as SEBI specifies
• minimum subscription amount=10,000-15,000 subject to max. subscription
• prior to the offer,the draft offer doc filed by merchant banker not less than 30 days before filing offer doc
• made public for comments by hosting on websites for not less than 21 days
• lead merchant banker considers all comments prior to filing offer doc
• accompanied with a due diligence certificate signed by (LMB) lead merchant banker
• filed not less than 5 days before offer opening
• open offer within not more than an year of observations upon draft or a fresh draft filed
• draft not required in case of fast-track issue
• subscription application accompanied by statement containing the abridged version detailing risk/summary of terms
• not be open for subscription for more than 30 days
• over-subscription; proportionate allotment
• allot/refund within 12 days of closing
• dematerialized issue
• price determined through book-building
• refund

• IM fails to allot/list within the specified time, interest @ 15 p.a.
• subject to other SEBI guidelines
• <10% used for general purposes as mentioned in objects

offer mandatorily made within 3+1 years from registration or surrender certificate and cease to operate;also called MANDATORY LISTING

SEBI GUIDELINES FOR PUBLIC ISSUE OF InvITs (11/05/2016)

1. filing offer doc
2. after filing, issue a pre-issue ad on websites of sponsor/IM & newspapers.
3. Institutional Investors allocated <75% and others allocated at least 25%.
4. ANCHOR INVESTORS
• “Anchor Investor” means a qualified institutional buyer who makes an application for a value of at least ten crore rupees in a public issue on the SEBI main board made through the book building process or makes an application for a value of at least two crore rupees for an issue made in accordance with SEBI (ICDR) Regulations, 2018.
• a strategic investor may participate as an anchor investor
• IM may allocate <60% of the portion available to institutional investors.
• application of at least  INR 100 million
• minimum 2 investors <INR 2.5 billions and min. 5 investors exceeding INR 2.5 billions
• bidding before issue opening and allocation completed on same day
• disclosed on websites
• bring-in deficit between cut-off price and allocation price
• LOCK IN
• 30 days for non-strategic investors
• 1 year for strategic investors
• neither merchant bankers nor related parties shall apply in this category except mutual funds,insurance co and pension funds.
5. IM has to deposit before opening, 0.5% units offered for subscription/50 million, whichever LOWER.
6. offer to remain open for 3-30 days
• in case of price band revision, the bidding period extended for at least a day within 30 days.
7. The floor price has to be announced on the website at least 5 working days before opening and newspapers in which the pre-issue ad was released.
• differential pricing not offered
• final/cut-off price determined consulting LMB/book building
8. bidding through electronically linked bidding facility mandatory
• ASBA optional
• bids rejected by LMB @ acceptance after providing reason and recording in writing
• withdrawing/lowering bid size is prohibited
9. allotted at/above cut-off price
10. no public if sponsor/IM/trustee debarred from accessing cap market/is on wilful defaulters list.
11. IM has to appoint a compliance officer

SEBI GUIDELINES FOR PREFERENTIAL ISSUE

conditions:

• completed within 12 months of passing a resolution
• allotment completed within 12 days
• same class/kind as initial offer
• listed at least 6 months prior to notice issue for approval meeting
• min. subscription same as initial offer
• 2-1000 investors offered in an FY
• RELEVANT DATE is the meeting date of IM's board or directors committee deciding to open a proposed issue.

PLACEMENT DOCUMENT

• appoint SEBI intermediaries
• contain disclosures as per regulations
• serially numbered and circulated to select investors
• while seeking in-approval principle,furnish placement doc copy & MB issued certificate confirming compliance.
• placed on websites along a disclaimer stating no offer to public

PRICING

• price not less than avg. of weekly high/low of closing prices 2 weeks preceding relevant date
• no allotment of partly-paid up units
• price adjusted if:
• made the rights issue
• other event/circumstance requiring adjustment
• no allotment to InvIT party except to sponsor for compliance
• applicants not to withdraw their bids
• not sold from 1 year of allotment except on recognised stock exchange

 LISTING AND TRADING 

1. mandatory listing; inapplicable if no min. subscription
2. according to listing agreement
3. if ineligible for listing, refund subscription monies + 15% interest p.a. from allotment
4. units traded,settled and cleared per by-laws of exchange
5. redemption by buy-back/delisting
6. min. public holding per provisions or ationable by SEBI
7. min. unit holders
• pvt. placed InvIT=5
• mandatorily listed within 30 working days from allotment
• trading lot=1 crore
• invests not less than 80% in completed/revenue generating assets and trading lot= 2 crores
• public=20
• at all times post listing
• mandatorily listed within 12 working days from IPO closure if eligible
• trading lot=1 unit
8. other than sponsors, holding prior to initial offer shall hold for not less than an year from listing

DELISTING 

• (a,b) if breached, IM can rectify within 6 months
• PPP projects,delisting per concession agreements
• SEBI considers applications in interest of unitholders
• may provide additional time
• may reject or take another action as it deems fit
• procedure/exit option per listing agreement/SEBI guidelines
• after delisting, surrender the registration certificate
• InvIT/parties continue to be liable notwithstanding surrender

INVESTMENT CONDITIONS/DISTRIBUTION POLICY

1. only in holdco/SPVs/infrastructure projects detailed in offer doc/placement doc
2. PPP PROJECTS shall mandatorily invest in infrastructure
3. through SPVs
• no other shareholder/partner shall have the right to prevent InvIT from compliance.
• agreement to provide apt dispute redressal mechanism
• SEBI regulations to prevail
• IM shall appoint the board majority consulting trustee and ensure InvIT voting is exercise in every meeting.
4. through HOLDCOs
• ultimate holding interest in underlying SPV not less than 26%
• other conditions are the same as through SPVs
5. invest not less than 80% in eligible infrastructure projects. however un-invested funds may be invested as per below.
• not less than 80% in completed/revenue generating infra projects
• only direct investments considered in case of equity linked instruments or partnership interest
• only completed part if implemented at stages
• not more than 20% in
• under-construction infra projects shall not exceed 10%
• debt in infra sector
• listed equity deriving not less than 80% operating income from infra sector
• govt. sec
• money market instruments,liquid mutual funds or cash equivalents
• if the above breached, IM informs the trustee and compliance within 6 months or additional 1 year with investors approval.
6. complied at offer doc/placement doc
7. DISTRIBUTIONS
• not less than 90% of SPV's net distributable cash flow distributed to holdco proportionately.
• not less than 90% of InvIT's cash flow distributed to unitholders.
• distribution from holdco to InvIT-
• from underlying SPVs,100% distributed
• generated by holdco, not less than 90% distributed
• declared not less than once every 6 months if publicly offered and not less than once a year in case of privately placed and made not later than 15 days from declaration.
• as mentioned in the offer doc/placement memo
8. if any infra asset is sold:
• proposed to re-invest into another infra asset, not required to distribute
• no re-investment proposal, required to be distributed
9. distributions not made within 15 days of declarations, IM pays interest @ 15% till distribution is made and not recovered in form of fees/compensation from IM.
10. shall not invest in other InvIT units
11. not undertake lending except debt secs, other than holdco/SPV.
12. hold an infra asset for not less than 3 years from purchase. inapplicable to investments in security of co. in the infra sector other than SPVs.
13. in the case of CO-INVESTMENT:
• investment by another person is not more favourable than InvIT
• not provide rights that prevent InvIT's compliance
• include min. % of distributable cash flows and dispute resolution modes.
• no schemes launched under InvIT
14. any SEBI specified additional conditions

UNITHOLDERS MEETING/RIGHTS

•  right to receive income/distributions as in the offer doc/placement memorandum. 
•  in matters requiring approval: 
1.  favourable votes exceed a certain % of against 
2. voting may be done by postal ballot/electronically
3. notice of not less than 21 days
4. related party votes not considered
5. IM-responsible for conducting a meeting overseen by the trustee
• a change in these entities, they shall not participate in the meetings.

• The annual meeting held not less than once a year within 120 days from FY end and time between 2 meetings shouldn't exceed 15 months.
• info required to be disclosed and issues requiring approval may be taken up
• for transactions other than borrowing=/>25% of InvIT assets
• borrowing excess of specified limit
• issue after IPO
• increasing compliance period for investment conditions
• de-classification of sponsor status
• in case of material changes/proposed delisting/on request of unitholders such as any removal/change: favourable votes not less than 1 and 1/2 times of the against.
• borrowing from an InvIT: 75% approval
• for delisting: 90% approval
• no person other than sponsor/related/associated to hold outstanding units excess of 75% unless approval from 75% (excluding units related to transaction) is acquired.

• change in sponsor/inducted sponsor: 75% approval required
• if approval is not received: exit option to dissenters as per SEBI

• IM/trustee to maintain records in physical/electronic form as required by SEBI.
• SEBI may exempt any person/class for not exceeding 12 months for furthering innovation in technological aspects in the live environment of regulatory sandbox.
• “regulatory sandbox” means a live testing environment where new products, processes, services, business models, etc. may be deployed on a limited set of eligible customers for a specified period of time, for furthering innovation in the securities market, subject to such conditions as may be specified by the SEBI. 

For details about Regulatory Sandbox, click on the link: Click Here!