SEBI to further ease InvITs and REITs norms

SEBI – Securities and Exchange Board of India is planning to further ease the rules governing REITs – Real Estate Investment Trusts and InvITs – Infrastructure Investment Trusts at its board of directors’ meeting on September 23.

U K Sinha, chairman said that implementation of norms on REITs and InvITs were dependent on certain tax sops. He continued that some of it was given out in the previous Union Budget. He spoke about the suggestions they had received on making further alterations to the regulations. They were likely to take a call in their board meeting this month, he added. He was very optimistic that Reits and InvIts would take off this year. Numerous entities had approached SEBI with applications to launch InvITs and REITs.

The chairman also said that the measures taken by SEBI on IPO – initial public offers of equity had yielded excellent results and the markets could witness a record in raising funds this fiscal.

Sinha, on the sidelines of an event on municipal bonds, said that two-thirds of IPOs traded below their issue price on a non-stop basis three years ago. The strict disclosure requirements by SEBI had given some cushion on pricing. The now had merchant banking track record disclosure requirements and size of the prospectus had been reduced. On these bonds, U K Sinha said that local bodies should practise the legal accounting norms to improve and enhance their credit ratings. He also gave assurance that it was high time they moved away from the outdated accounting system, which municipalities followed. They needed to adopt the latest, fresh and investor-friendly accounting norms. SEBI would look into any and every issue and suggestion concerning credit rating of municipal bonds, added the chairman.

What are municipal bonds?

A municipal bond can be defined as a debt security issued by a state, municipality or county to finance capital expenditures which include the construction of highways, schools or bridges or even for that matter water supply and sanitation. Municipal bonds are free from from federal taxes and from most of the state and local taxes, making them attractive to people especially belonging to high income tax brackets.

In July 2015, SEBI notified the novel norms for listing and trading of municipal bonds on the stock exchanges to aid the smart cities programme launched by Prime Minister Narendra Modi’s government. The municipal bonds shall allow authorities to raise funds for setting up smart cities by mopping up money from both public and institutional investors.

Sinha commented that interest rate of 8 per cent on the municipal bonds could be made more lucrative by offering greater amount of flexibility in interest rates.

Two stocks in the infrastructure sector who have benefitted most from the news and have shown positive price movement in the last 4 days are as follows:

• Housing Development and Infrastructure Limited (HDIL)
• IRB Infrastructure Developers Limited (IRB)

HDIL took support of its previous month low of Rs.88.70 after making a low of Rs.87.95. Thereafter, in the last 4 days it has risen by 16 per cent from Rs.87.95 to Rs.101.30.

On the other hand, IRB took support of its previous month low of Rs.202.6. Its weekly low stands at Rs.225.1. In the last 4 days, it has risen by 11.7 per cent, from Rs.227.6 to Rs.254.4. IRB Infrastructure Developers on Thursday said that its InvIT – infrastructure investment trust fund has filed a DRHP – draft red herring prospectus with market regulator SEBI to raise as much as Rs.4,300 cr. IRB share price rose as much as 9.8 per cent on Thursday after the announcement. It is the very first company to file a draft red herring prospectus for an InvIT.

However, there is a third stock which is running very close to the above two – Indiabulls Real Estate Limited.

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