REVOLUTIONIZING RETURNS: SEBI INTRODUCES GAME- CHANGING NET DISTRIBUTABLE CASH FLOW FRAMEWORK FOR REIT AND INVIT, SETS A NEW FINANCIAL HORIZON
Securities Exchange Board of India ("SEBI"), vide its circulars dated December 6, 2023, has introduced new framework for calculating available Net Distributable Cash Flows ("NDCF") for Real Estate Investment Trust ("Circular no. 1") and Infrastructure Investment Trust ("Circular no. 2") at both trust as well as HoldCo/SPV levels.
Regulation 18(16) of SEBI (Real Estate Investment Trust) Regulations, 2014 ("REIT Regulations") and SEBI (Infrastructure Investment Trust) Regulations, 2014 ("InvIT Regulations") establishes framework for computing NDCF at both trust and HoldCo/SPV levels and emphasized that the minimum distribution is 90% of NDCF at both levels. To enhance the ease of doing business, a standardized framework for calculating available NDCF has been introduced, outlined in Annexure A of the revised regulations.
The circulars have also emphasized the method of distribution, retention of funds, treatment of sales investments and assets and provides guidance for temporarily parked funds. The effective date of the new framework introduced is April 1, 2024.
To read Circular no. 1 click here & to read Circular no. 2 click here
SEBI OUTLINES THE ÁROCESS FOR DEMATERIALISATION/ CREDITING OF UNITS BY AIFs WHERE INVESTORS HAVEN'T ÁROVIDED DEMAT ACCOUNT DETAILS
In June 2023, SEBI mandated all schemes of Alternative Investment Funds ("AIFs") to issue or convert their units in dematerialised form within a specified timeframe.
SEBI, vide its circular dated December 11, 2023, has now laid down the process for dematerialising/ crediting the units issued by AIFs, where investors are yet to provide demat account details to AIFs.
The said circular sets out that managers of AIFs shall continue to reach out to existing investors to obtain their demat account details and credit the units issued to them to their respective demat accounts. In this regard, the AIF industry and depositories have been directed to adopt implementation standards as formulated by the pilot Standard Setting Forum for AIFs (SFA) along with the 2 depositories, in consultation with SEBI.
Further, units already issued by schemes of AIFs to existing investors who have not provided their demat account details, shall be credited to a separate demat account named 'Aggregate Escrow Demat Account'. New units to be issued in demat form shall be allotted to such investors and credited to the Aggregate Escrow Demat Account. As and when such investors provide their demat account details to AIFs, their units held in the Aggregate Escrow Demat Account shall be transferred to the respective investors' demat account within 5 working days.
The circular clarifies the following with respect to issuance and credit of units of AIFs in demat form:
| Details | Schemes of AIFs with corpus ≥ INR 500 crores as on October 31, 2023 | Schemes of AIFs with corpus < INR 500 crores as on October 31, 2023 and schemes launched after October 31, 2023 irrespective of corpus |
| Investors who have provided their demat account details. | Units issued after October 31, 2023, shall be in demat form and credited only to the investors demat accounts. | Units issued after April 30, 2024, shall be in demat form and credited only to the investors demat accounts. |
| Investors who have not provided their demat account details. | For investors on-boarded prior to November 1, 2023, units shall be credited in the Aggregate Escrow Demat Account temporarily, till investors provide their demat account details. | For investors on-boarded prior to May 1, 2024, units shall be credited in the Aggregate Escrow Demat Account temporarily, till investors provide their demat account details. |
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Completion of credit of demat units to:
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Latest by January 31, 2024. | Latest by May 10, 2024. |
To read the circular click here
SEBI AMENDS GUIDELINES FOR ONLINE RESOLUTION OF DISÁUTES
SEBI, vide its circular dated December 20, 2023, has made amendments to its circular dated July 31, 2023 ("ODR Circular"), which set out the guidelines for online dispute resolution in the Indian securities market, so as to provide clarity on certain aspects provided therein.
Key amendments, inter alia, include the following:
- Inclusion of institutional/corporate clients within the ambit of investors/ clients, whose disputes would be resolved in accordance with the ODR Circular;
- Inclusion of provisions clarifying that the seat and venue of mediation, conciliation and/or arbitration shall be in India and may be conducted online;
- Clarification on the details pertaining to fees, charges and costs for independent mediation institution or independent conciliation institution and/or independent arbitration institution (and of the mediators/ conciliators/ arbitrators);
- Clarification on enrolment on the ODR portal, initiation, and fees for online arbitration;
- Provision for applicable arbitration fees in case of arbitration claims of INR 1 crore and above (previously the ODR Circular provided a slab wise arbitration fee with a flat fee for arbitration claims of INR 50 lakhs and above without any upper limit); and
- Addition of entities such as bankers to an issue, self-certified syndicate banks, merchant bankers, commodities clearing corporation and ESG ratings to the list of specified intermediaries and regulated entities set out in Schedules A and B of the ODR Circular.
To read the circular click here
NOMINATE AT EASE: SEBI OFFERS EXTENSION FOR ÁROVIDING CHOICE OF NOMINATION
SEBI, vide its circular dated December 27, 2023, has extended the deadline for appointing a nominee for the demat accounts and mutual fund folios to June 30, 2024. Further, the responsibility has been imposed on the Depository Participants (DPs), Asset Management Companies (AMCs) and Registrars to an Issue and Share Transfer Agents (RTAs) to encourage the demat account holders/ mutual fund unit holders to fulfil the requirement for nomination/opting out of nomination by sending a communication on fortnightly basis for better communication to various accountholders and to provide guidance to provide nomination or opt out of nomination.
To read the circular click here
RBI ISSUES INSTRUCTIONS ON INVESTMENTS IN AIFs TO ÁREVENT EVERGREENING OF LOANS
Reserve Bank of India ("RBI"), vide its notification dated December 19, 2023, has issued a circular with instructions on the procedure to be followed by the Regulated Entities ("REs") in order to make investments in units of AIFs, and to address concerns relating to possible evergreening through this route. REs make investments in units of AIFs as part of their regular investment operations. However, as per RBI, certain transactions of REs involving AIFs entail substitution of direct loan exposure of REs to borrowers, with indirect exposure through investments in units of AIFs.
In order to tackle these issues, RBI has issued the following instructions:
- REs will not be allowed to invest in any scheme of AIFs which have downstream investments, either directly or indirectly, in a debtor company of the RE. The debtor company has been defined as any company to which the RE currently has or previously had given a loan or investment exposure in the preceding 12 months.
- If an AIF scheme, in which an RE is already an investor, makes a downstream investment in a debtor company, then the RE is required to liquidate its investment in the AIF scheme within 30 days from the date of making such downstream investment. Further, in the event REs have already made investments in such AIF schemes, the 30-day period for liquidation shall initiate from the date of issuance of this circular.
- REs will be entrusted with the responsibility of arranging to advise the AIFs suitably on this matter.
- In the event, the REs are unable to liquidate their investments within the prescribed time limit, they will be required to make a 100% provision on such investments.
- Any investment by REs in subordinated units of any AIF scheme with a 'priority distribution model' will be subject to a full deduction from REs' capital funds. The term 'priority distribution model' refers to a distribution waterfall structure of AIFs where one class of investors share loss more than pro rata to their holding in the AIFs with respect to the other classes of investors/ unit holders.
To read the circular click here
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