SEBI Suggest Interest Rate Derivates to Protest REITs & InVITs

                The Securities and Exchange Board of India (SEBI) has proposed measures aimed at enhancing the operational framework for (REITs) and Infrastructure Investment Trusts (InvITs). 
These proposals, outlined in two consultation papers, seek to improve business flexibility while safeguarding investor interests. 
SEBI is considering allowing REITs and Small and Medium REITs (SM REITs) to utilize interest rate derivatives, such as swaps, to hedge against fluctuations in interest rates.
This shift aims to stabilize cash flows and mitigate risks associated with long-term infrastructure projects .Additionally, the regulator proposes recognizing fixed deposits as cash 
equivalents in leverage calculations for REITs and InvITs. This clarification, along with refined credit rating requirements for borrowings, is expected to enhance financial management 
within these entities.

To facilitate better management of holdings, SEBI suggests enabling locked-in units for REITs and InvITs to be transferred among sponsors and their affiliates, akin to existing rules for 
promoters of listed companies.

This initiative aims to maintain "skin in the game" for sponsors while providing them with greater flexibility.

The governance norms for quarterly reporting of InvITs are also set to be amended. The proposed changes will mandate that quarterly results reflect the performance of the InvITs 
themselves, aligning them more closely with REIT regulations. Furthermore, the regulator recommends allowing a mix of independent and non-executive directors in Nomination and 
Remuneration Committees (NRCs) of REIT and InvIT managers, mirroring the governance structure of listed companies.

SEBI’s proposals extend to defining "Common Infrastructure" to include facilities like power plants and water treatment systems that serve multiple REIT assets. These facilities can 
operate independently from specific project locations, thereby enhancing operational efficiency.

Additionally, the introduction of liquid mutual fund investments for REITs is expected to provide further diversification options for managing cash flows.

SEBI is seeking public comments on these proposed changes until November 13.


Source : Economic Times