The Securities and Exchange Board of India (SEBI) has issued amendments to the Master Circular for Real Estate Investment Trusts (REITs), originally dated May 15, 2024. These changes focus on two key areas: (A) revision of lock-in provisions for units issued through preferential allotments to sponsors and sponsor groups, and (B) introduction of a detailed framework for Follow-On Offers (FOOs) by listed REITs. These updates are intended to ease compliance, improve flexibility for market participants, and support efficient capital raising.
A. Revised Lock-in Provisions for Preferential Issue of Units
Previously, the lock-in provisions required that:
- 25% of units allotted to sponsors/sponsor groups via preferential issue be locked in for 3 years, and
- The remaining portion be locked in for 1 year.
- However, this did not fully align with Regulation 11(3) of SEBI’s REIT Regulations, which mandates a minimum holding of 15% of total units by sponsors for 3 years from listing.
To simplify and harmonize requirements, SEBI has revised the lock-in structure:
- Only 15% of units allotted via preferential issue to sponsors/sponsor groups will be locked in for 3 years.
- The balance units will now be locked in for 1 year.
- The 15% minimum holding requirement (as per Regulation 11(3)) must be maintained at all times.
Inter-se Transfer of Locked-in Units
SEBI has also introduced provisions to allow inter-se transfer of locked-in units among sponsors and sponsor group entities, subject to:
- The transferee maintaining the remaining lock-in period.
- Transfers allowed only within the same sponsor group, not across different sponsors.
- In case of change in sponsor, units may be transferred to the new sponsor or sponsor group to maintain the 15% threshold.
- Transfers are also permitted during transition to a self-sponsored manager, subject to the same conditions.
B. Guidelines for Follow-On Offers (FOOs)
SEBI has formalized the regulatory framework for REITs to raise additional capital through Follow-On Offers (FOOs):
Key Guidelines:
- REITs must comply with Chapter 2 (public issue) of the Master Circular.
- Minimum public unitholding of 25% must be maintained post-FOO.
- Units must be issued only in demat form.
- No additional units (e.g., via rights issue or QIP) can be issued during the FOO process (except for employee benefit schemes).
- Disclosures must comply with Chapter 3, with exemptions for revenue projections and combined financial statements.
Timeline and Due Diligence:
- Listing and allotment timelines should match those of an IPO.
- Any delays trigger interest payments to applicants.
- Merchant bankers must submit due diligence certificates (Annexure 1: Form A & B).
Effective Date and Legal Authority
These changes are effective immediately and are issued under SEBI Act, 1992 and relevant provisions of the SEBI (REIT) Regulations, 2014.
