Mumbai: The Securities and Exchange Board of India (SEBI) has introduced a proposal aimed at enhancing financial transparency in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). These proposed changes focus on how these investment vehicles disclose their financial information in public offer documents and their ongoing reporting obligations post-listing.
What are REITs and InvITs?
REITs and InvITs function as pooled investment instruments, allowing investors to participate in real estate and infrastructure projects, respectively. These entities are listed on stock exchanges, enabling investors to trade their units similarly to company stocks.
Under the new proposal, REITs and InvITs raising capital through Initial Public Offerings (IPOs) require presenting detailed, combined financial statements. Even, recently formed trusts must disclose the overall financial health of all associated entities, ensuring investors get a comprehensive view.
Post-Listing Compliance Measures
Once listed, these trusts will have to adhere to stringent financial reporting norms similar to those followed by publicly traded companies. The key measures include:
Mandatory Audited Statements for Fundraising: When REITs and InvITs seek additional funding through follow-up offers, they must provide consolidated and audited financial reports, eliminating the practice of presenting only summary versions.
Elimination of Condensed Statements: SEBI intends to do away with condensed financial statements, ensuring investors receive a full disclosure of financial data.
Quarterly Reporting on Fund Utilisation: Instead of semi-annual updates, SEBI proposes that these trusts must submit quarterly reports detailing the usage of raised funds.
Net Borrowing Ratio Disclosure: The proposal also requires REITs and InvITs to disclose their net borrowing ratio, providing investors with insights into their debt levels relative to assets.
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The objective of the Proposed Changes
The market regulator aims to improve transparency, safeguard investor interests, and ensure better financial accountability within these trusts. By mandating more detailed disclosures, SEBI seeks to equip investors with critical financial information for making well-informed decisions.
SEBI has invited public feedback on the proposed reforms, with submissions open until March 7. After evaluating the responses, the regulator may finalise the new rules, strengthening oversight of REITs and InvITs in India's financial market.
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