Securities and Exchange Board of India (SEBI) has released a consultation paper on real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) that envisages giving special rights to unit-holders, looks at the roles of sponsors and also proposes the concept of self-sponsored trusts.

With regard to unit-holders’ rights, there was demand from industry players that unit-holders have the right to nominate directors on the boards of investment managers of REITs and InvITs.

Nominate directors

There are two options in this. In one option, nomination rights will be given to unit-holders with a certain percentage of units and above, on the board of the investment manager. Under the second option, there would be a ‘Unit-holders’ Council’ with nominees of unit-holders of REIT and InvIT holding certain percentage of units and above.

The threshold for a unit-holder to nominate a member on the board is 10 per cent. It has been proposed that there would be at least three members on the unit-holders’ council.

Each member of the Unit-holder’s Council will have one vote for each 10 per cent stake. For example, a nominee of a 20 per cent unit-holder would have two votes and the nominee of a 30 per cent unit-holder will have three votes and so on. Alternatively, the unit-holders holding 10 per cent or more of the units can appoint one member on the Unit-holders’ Council per 10 per cent held.

Stewardship code

The consultation paper has also proposed that the Stewardship Code, being followed by mutual funds and alternate investment funds, should also be applicable to REITs and InvITs.

On the role of sponsors, the paper has proposed a maximum cap on locked-in units in value terms at all times. The proposal is that for up to three years, 15 per cent of the capital will be locked in; for three-five years, 5 per cent will be locked-in; 3 per cent for 5-10 years, 2 per cent for 10-20 years and 1 per cent for over 20 years.

The paper has also mooted the provision for a self-sponsored REIT or InvIT, capable of standing on its own. The eligibility criteria for a self-sponsored trust would be that it has to be listed for at least five years, should have made 12 distributions on a continuous basis, has a top credit rating for five years, has not breached maximum leverage thresholds in the preceding five years and meets the prescribed net worth criteria, among others.

The last date for public comments on the consultation paper is May 29.