Infrastructure Investment Trust – Corporate Funding and Listings in Stock Exchanges Important Questions

Question 1.
What guidelines have been issued by SEBI for public issue of units of InvITs? Describe them.
Answer:
Followings are the guidelines issued by SEBI for public issue of units of InvITs are mentioned below:

  • Appointment of Merchant Bankers: The Investment Manager on behalf of the InvIT shall appoint one or more merchant bankers, at least one of whom shall be a lead merchant banker and shall also appoint other intermediaries in consultation with the lead merchant banker, to carry out the obligations relating to the issue.
  • Draft Offer Document: After receipt of comments from public and observations from SEBI, the draft offer document shall be filed with SEBI and the designated stock exchanges.
  • Issue through Book Building: In an issue made through the book building process or otherwise the allocation in the public issue shall be as follows:
    • not more than 75% to Institutional Investors.
    • not less than 25% to other investors.
  • Investment manager on behalf of the InvIT may allocate up to 60% of the portion available for allocation to Institutional Investors to anchor investors.
  • The Investment Manager on behalf of the InvIT shall deposit before the opening of subscription and keep deposited with the stock exchange^) an amount calculated at the rate of 0.5% of the amount of units offered for subscription to the public or ? 5 crore whichever is lower.
  • A public issue shall be kept open for at least three working days but not more than thirty days.
  • Where the InvIT desires to have the issue underwritten, it shall appoint the underwriters in accordance with SEBI (Underwriters) Regulations, 1993.
  • The investment manager on behalf of the InvIT, may determine the price of units in consultation with the lead merchant banker or through the book building process.
  • Records related to allocation process shall be maintained by the lead book runner and the book runner/s and other intermediaries associated in the book building process shall also maintain records of the book building prices.
  • The lead merchant banker shall submit the following post-issue reports to SEBI:
    • Initial post issue report, within three working days of closure of the issue.
    • Final post issue report, within fifteen days of the date of finalization of basis of allotment or within fifteen days of refund of money in case of failure of issue.
  • The lead merchant banker shall submit a due diligence certificate along with the final post issue report.
  • Any public communication including advertisement, publicity material, research reports, etc. concerned with the issue shall not contain any matter extraneous to the contents of the offer document.
  • The post-issue lead merchant banker shall regularly monitor redressal of investor grievances relating to post-issue activities such as allotment, refund, etc.
  • The lead merchant bankers shall:
    • exercise due diligence and satisfy himself about all the aspects of the issue including the veracity and adequacy of disclosure in the offer documents.
    • ensure that the information contained in the offer document and the particulars as per audited financial statements in the offer document are not more than six months old from the issue opening date.

Question 2.
Explain the circumstances under which an Investment Manager of an Infrastructure Investment Trust (InvIT) can apply to SEBI and the designated Stock Exchange for delisting of its units.
Answer:
The investment manager shall apply for delisting of units of the InvIT to SEBI and the designated stock exchanges if:

  • The public holding falls below the specified limit under the InvIT Regulations.
  • The number of unit holders of the InvIT falls below the limit as prescribed in the InvIT Regulations.
  • If there are no projects or assets remaining under the InvIT for a period exceeding six months and InvIT does not propose to invest in any project in future. Extension of period can be possible by 6 months further with the approval of unit holders.
  • SEBI or the designated stock exchanges require such delisting for violation of the listing agreement or these regulations or the Act.
  • The sponsor(s) or trustee requests such delisting and such request has been approved by unit holders in accordance with these regulations.
  • SEBI or the designated stock exchanges ensure such delisting in the interest of the unit holders.
  • Unit holders apply for such delisting in accordance with these regulations.

Question 3.
List of intermediaries involved in an InvIT ?
Answer:
Intermediaries involved in an InvIT are as follows:

  • Merchant Bankers
  • Advertising agency
  • Registrar to the Issue
  • Syndicate Members
  • Public Issue Banks
  • Escrow Collection Banks
  • Credit Rating Agencies
  • SCSBs, Registered Brokers, RTAs and Collecting Depository Participants

Question 4.
Discuss the role of key stakeholders in InvIT Structure?
Answer:
Role of key stakeholders in InvIT Structure discussed below:

Name of Key stakeholder Respective Role in InvIT Structure
Sponsor Setup InvIT and appoint the trustee.
Hold minimum required percentage of total units of InvIT.
Investment Manager Make investment decisions in relation to underlying assets.
Ensure assets have proper legal title and contracts entered are legal, valid and binding.
Project Manager Undertake operations and management of InvIT assets.
For under construction projects ensure progress of developments, approval status and such other aspects.
Trustee Hold InvIT’s assets in the name of InvIT for the benefit of unit holders.
Ensure investment manager makes timely payment of dividend to unit holders.

Question 5.
If the InvIT raises funds by way of private placement in that case what conditions are required to be fulfilled?
Answer:
Following conditions are required to be fulfilled, if the InvIT raises funds by way of private placement:

  • it shall do it through a placement memorandum.
  • it shall file the final placement memorandum with SEBI within a period of ten working days from the date of listing of the units issued therein.
  • from institutional investors and body corporate only, whether Indian or foreign. However, in case of foreign investors, such investment shall be subject to guidelines as may be specified by RBI and the Government from time to time.
  • with minimum investment from any investor of rupees one crore. If such an privately placed InvIT invests or proposes to invest not less than eighty per cent of the value of the InvIT assets in completed and revenue generating assets, the minimum investment from an investor shall be rupees twenty five crores.
  • from not less than five and not more than one thousand investors.
  • shall file a placement memorandum with SEBI along with the fee as specified in the SEBI InvIT Regulations at least 5 days prior to opening of the issue. On the other hand, such opening of the issue shall not be at a date later than 3 months from the receipt of in-principle approval for listing, from exchange(s).

Question 6.
Explain the provisions of Regulation 3 SEBI (InvIT) Regulations, 2014.
Answer:
As per Regulation 3 of SEBI (InvIT) Regulations, 2014:

  • Mandatory Registration: No person shall act as an InvIT unless it has obtained a certificate of registration from the SEBI under these regulations.
  • Application by Sponsor: An application for grant of certificate of registration as InvIT shall be made by the sponsor on behalf of the trust in such form and in such a manner as prescribed in these regulations.

Question 7.
Write detailed note on: “Anchor Investor”.
Answer:
“Anchor Investor”:

  • A strategic investor may participate in an offer as an anchor investor.
  • The anchor investors will have to make an application of a value of at least INR 100 million in the public issue.
  • The investment manager, on behalf of the InvIT, may allocate up to 60% of the portion available to institutional investors to anchor investors.
  • Allocation to anchor investor shall be on a discretionary basis, and subject to the minimum of two investors for allocations of up to INR 2.5 billion and minimum five investors for allocations exceeding INR 2.5 billion.
  • The number of units allocated and the allocation price must be disclosed on the websites of the stock exchange(s), sponsor(s), investment manager and merchant banker(s).
  • The anchor investor shall have to bring in the deficit between the cut-off price and the allocation price, if any.
  • The lock-in period shall be thirty days for anchor investors other than a strategic investor. However, lock-in should be one year for strategic investors investing as anchor investors.
  • The bidding for anchor before the issue opening date and the allocation must be completed on the same day.

Question 8.
What are the guidelines for preferential issue of units by InvIT under SEBI (InvIT) Regulations, 2014?
Answer:
Guidelines for preferential issue of units by InvIT under SEBI (InvIT) Regulations, 2014:
A listed InvIT may make preferential issue of units adhering following guidelines as follows:

  • Completed within 12 months from date of passing resolution: It shall be completed within a period of twelve months from the date of passing of the resolution.
  • Allotment Completion with 12 days: Allotment pursuant to preferential issue shall be completed within 12 days.
  • Dematerialized Form: The units shall be issued only in dematerialized form.
  • Minimum subscription and trading lot: The minimum subscription and trading lot for the emits to be issued in preferential issue shall be same as that for units issued in the initial offer by the InvIT.
  • Minimum and maximum investors in a financial year: Units in a preferential issue shall be offered and allotted to a minimum of two investors and maximum of 1000 investors in a financial year.
  • Relevant date for the purpose of preferential issue: It shall mean the date of the meeting in which the board of directors of the investment manager of the InvIT or the committee of directors duly authorised by the board of directors of the investment manager of the InvIT decides to open the proposed issue.
  • Units to be issued in preferential issue shall be of same class or kind
    as the units issued in the initial offer by the InvIT.
  • Listed on a recognised stock exchange having nationwide trading:
    Such units have been listed on a recognised stock exchange having nationwide trading terminal for a period of at least six months prior to the date of issuance of notice to its unit holders for convening the meeting to approve the preferential issue.

Question 9.
What are the requirements for offer document and its advertisements by theInvIT?
Answer:
The requirements for offer document or placement memorandum and its advertisements by the InvIT are as follows as per Regulation 15 of SEBI (InvIT) Regulations, 2014:

Offer Document:
i. The offer document or placement memorandum of the InvIT shall contain material, true, correct and adequate disclosures to enable the investors to make an informed decision.
ii. Without prejudice to the generality of point (i) above, the offer document or placement memorandum:

  • Not be misleading and not contain any untrue statements or misstatements.
  • Not provide for any guaranteed returns to the investors.
  • Include such other disclosures as may be specified by SEBI.
  • The offer document and placement memorandum shall include all information as specified under Schedule IH of these regulations.

Advertisement:

  • No advertisement shall be issued pertaining to issue of units by an InvIT which makes a private placement of its units.
  • In respect to advertisements pertaining to the offer of units by an InvIT with respect to public issue of its units.
  • Advertisement material shall not be misleading and shall not con-tain anything extraneous to the contents of the offer document.
  • If an advertisement contains positive highlights then in that case it shall also contain risk factors with equal importance in all aspects including print size.
  • The advertisements shall be in accordance with any circulars or guidelines as may be specified by SEBI in this regard.

Question 10.
Discuss four conditions which are required to be satisfied for preferential issue of units to an institutional investor as defined in the InvIT Regulations?
Answer:
Infrastructure Investment Trust (InvIT) may make preferential issue of units to an institutional investor as defined in the InvIT Regulations, if it satisfies the following conditions:

  • A resolution of the unit holders of the Infrastructure Investment Trust (InvIT) approving the preferential issue has been passed.
  • Infrastructure Investment Trust (InvIT) is in compliance with the conditions for continuous listing and disclosure obligations under these regulations and circulars issued there under.
  • Infrastructure Investment Trust (InvIT) is in compliance with the minimum public unit holding requirements as stipulated under the InvIT Regulations.
  • No preferential issue of units by the Infrastructure Investment Trust (InvIT) has been made in the six months preceding the relevant date.

Corporate Funding and Listings in Stock Exchanges Notes