SEBI Allows Unitholders of REITs Holding At Least 10% of Total Units to Nominate One Director On Board

Notification No. SEBI/LAD-NRO/GN/2023/144., Dated 16.08.2023

SEBI has notified an amendment to the SEBI (REIT) Regulations, 2014. A new proviso has been inserted into regulation 4, which defines eligibility criteria. A new sub-regulation (qa) has been introduced to regulation 2 defining ‘group entities of the Manager’. Also, the definition of ‘Self-Sponsored Manager’ under sub-regulation (zra) has been introduced.

Further, unitholders holding at least 10% of total outstanding units of REIT have been entitled to nominate one director on the board of directors of the Manager. Further, Also, the ‘stewardship code’ has been introduced for compliance by unitholders.

Also, amendment has been notified in Regulation 11(3). Now, the sponsor(s) and sponsor group(s) shall collectively hold not less than:

1. 15 % of the total units of the REIT, for three years from the date of listing of units in the initial offer.
2. 5 % of the total units of the REIT, from the beginning of fourth year and till the end of fifth year from the date of listing of the units issued in the initial offer.
3. 3 % of the total units of the REIT, from the beginning of sixth year and till the end of tenth year from the date of listing of the units issued in the initial offer.
4. 2 % of the total units of the REIT, from the beginning of eleventh year and till the end of twentieth year from the date of listing of the units issued in the initial offer.
5. 1 % percent of the total units of the REIT, after completion of the twentieth year from the date of listing of units issued in the initial offer.

Further, the SEBI has now prescribed the condition for existing sponsor(s) proposing to disassociate as sponsor(s) by seeking to convert the Manager to Self-Sponsored Manager. Such conditions include:

1. The REIT has been listed for a period of at least five years.
2. The REIT has undertaken not less than twelve distributions on a continuous basis and has complied with the distribution norms.
3. The REIT is rated AAA by a registered credit rating agency for a continuous period of five years.
4. The Manager is meeting the net worth criteria for the sponsor as specified.

The SEBI has introduced Schedule IX for ‘stewardship code’. The following principles of stewardship code shall be complied with by any unitholder holding not less than ten percent of the total outstanding units of the REIT:

1. They must act in the best interests of the REIT and its unitholders as a whole;
2. They should formulate a comprehensive policy on the discharge of their stewardship responsibilities, review and update the same periodically;
3. They should have a policy to manage issues of conflict of interest while fulfilling their stewardship responsibilities;
4. They should periodically monitor the REIT and its investee entities viz. Holding Companies and SPV(s).

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