Securities and Exchange Board of India (SEBI) issued a draft circular for public comments, outlining proposed changes to the disclosure of financial information and continuous compliance requirements for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). This review, prompted by inputs from various stakeholders, including industry bodies like the Indian REITs Association and Bharat InvITs Association, aims to enhance transparency and streamline the regulatory process for these investment vehicles.
Background and Need for Review
REITs and InvITs play a crucial role in providing investment opportunities in the real estate and infrastructure sectors, respectively. As part of SEBI’s ongoing efforts to improve the ease of doing business and protect investor interests, the draft circular reviews the guidelines outlined in Chapter 3 and Chapter 4 of the Master Circulars for REITs and InvITs, dated May 15, 2024. These chapters currently guide the disclosure of financial information in offer documents and continuous compliance after listing. The proposed changes seek to further simplify compliance requirements and enhance the quality of disclosures.
Key Proposed Changes
The draft circular presents several important modifications to the existing guidelines. Some of the major proposed changes include:
Clarification on Unit Capital Classification: SEBI proposes to clarify the classification of unit capital as equity for financial reporting purposes. This would ensure consistency in the preparation of financial statements for both REITs and InvITs.
Quarterly Reporting of Deviation in Use of Debt Proceeds: Currently, REITs and InvITs are required to submit statements on the deviation in the use of proceeds from debt issuance on a semi-annual basis. SEBI now proposes to shorten this interval to a quarterly submission, aligning with global best practices and ensuring timely investor communication.
Condensed Financial Statements Removed: In line with the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, SEBI is removing the option for REITs and InvITs to disclose condensed financial statements. This aims to improve transparency and consistency in financial reporting.
Alignment with SEBI’s Listing Regulations: The draft circular also proposes aligning the financial reporting practices of REITs and InvITs with the Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015. This includes mandatory disclosure of quarterly results, the preparation of segment information, and the audit or limited review of financial results.
Net Borrowings Ratio and Other Financial Ratios: To increase financial transparency, SEBI plans to mandate the disclosure of the Net Borrowings Ratio as part of the financial results. Additionally, REITs and InvITs with outstanding borrowings will be required to disclose key financial ratios, helping investors assess the trust’s financial health more effectively.
Applicability of Schedule III of the Companies Act: The circular proposes making the provisions of Schedule III of the Companies Act, 2013, applicable for the preparation of financial statements for continuous disclosure. This would provide a uniform framework for accounting practices and improve the comparability of financial data.
Public Consultation and Feedback
SEBI has opened a window for public comments on these proposed changes. Stakeholders, including market participants, industry experts, and investors, are encouraged to submit their feedback by March 7, 2025, via an online web-based form available on SEBI’s website. This step ensures that SEBI can gather a broad spectrum of inputs before finalizing the amendments.
For those experiencing technical issues with the submission process, SEBI has provided contact details for assistance.
