The Securities and Exchange Board of India has proposed additional regulations for the Real Estate Investment Trusts and Infrastructure Investment Trusts regarding the issuance of subordinate units.
One significant proposal suggests setting a limit on the number of subordinate units that a REIT or InvIT can issue. According to the proposal, the number of subordinate units issued during asset acquisition should not exceed 10% of the asset's purchase price. Additionally, the total outstanding subordinate units should not surpass 10% of the total ordinary units at any given time.
Another proposal addresses the nature of inferior rights associated with subordinate units. SEBI proposes that subordinate units should carry either inferior voting rights, inferior distribution rights, or both.
To ensure consistency across the industry, SEBI is seeking public opinion on three options:
Subordinate units with no distribution and voting rights.
Subordinate units with inferior distribution and voting rights, up to 10% of the corresponding rights on ordinary units.
A combination, specifying a range for inferior distribution and voting rights as compared with ordinary units.
SEBI is also seeking comments on whether there should be a cap on subordinate units and, if so, whether the proposed 1% cap is sufficient during asset acquisition and cumulatively in the unit capital of the REITs or InvITs.
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