Sebi will establish governance standards for REITs and InvITs that are comparable to those for publicly traded companies.

MUMBAI: Sebi, the market regulator, announced on Tuesday that it will implement governance standards for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) along the lines of listed companies. The provisions relating to auditor tenure, leverage computation, and unclaimed/unpaid distributions for REITs and InvITs will be standardized by the regulator.

The Sebi board of directors approved these proposals at its meeting on Tuesday. Sebi has decided to implement governance standards for REITs and InvITs along the lines of standards of corporate governance for publicly traded companies.

“The corporate governance norms applicable to listed companies will apply to REITs and InvITs, regardless if any debt security was issued by them,” the release mentioned.

However, certain Sebi (Listing Obligations and Disclosure Requirements) Regulations have been carved out that are not directly applicable or are already specified for REIT/ InvIT under respective regulations.

Kranti Mohan, Partner and Head of REITs and InvITs at legal advisor Cyril Amarchand Mangaldas, stated that while these entities have indeed applied these governance requirements, “putting in these regulations will indeed avoid uncertainty and enforce adherence on an ongoing basis”.

As part of streamlining the regulations for REITs and InvITs, the regulator stated that an auditor’s tenure will be made until the result of the fifth annual meeting of unit holders, and a statutory auditor will initiate a limited review of audit of all entities or industries whose accounts are to be consolidated.

“Investment in the overnight fund to be treated as cash and cash equivalent for the purpose of calculating leverage… unredeemed/unpaid dividends for REIT/ InvIT to be transferred to the ‘Investor Protection and Education Fund’ established by Sebi,” according to the release.

Another decision made by Sebi will allow Alternative Investment Funds (AIFs) to engage in Credit Default Swaps as both buyers and sellers. This is subject to risk mitigation conditions.

The move, according to the regulator, is intended to give AIF managers more investment flexibility and to facilitate the development of the domestic corporate bond market.