DNA Money Edit: Trust in bonds and be bonded by Trusts

Securities and Exchange Board of India’s (Sebi) move to amend norms governing real estate investment trusts (Reits) and infrastructure investment trusts (InvITs) and allowing them to raise funds through debt securities will give them a shot in the arm and will act as a catalyst to make their structures simpler. Sebi has also allowed single-asset Reits, going against the current rule of at least two projects under each Reit. This will help developers and corporates try a hand on the new fund-raising avenue with one asset in the kitty.

In order to make Reits and InvITs more popular, Sebi has been tweaking the norms ever since they were notified in September 2014. Over the past three years, though many announced their plans to list Trusts, only two InvITs have seen the light of the day — IRB InvIT Fund and Indiagrid Trust. No Reit has been issued yet, though one, Embassy Office Parks Reit, registered with the markets regulator.

InvIT/Reits are not permitted to raise bonds under the Indian Trusts Act, 1882. As a result, debt securities are being issued at the SPV level in the current InvIT structures. In order to achieve the benefit of cashflow pooling, whereby the SPVs can support each other’s debt obligations, the InvIT/Reit was required to extend guarantees for external debt raised at SPV level, said Icra in a report. As of now, they are allowed to raise funds only through external commercial borrowings (ECB) having certain end-use restrictions. The Sebi move will surely push Reits and InvITs into the bond market.