- A framework for the issuing of subordinate units by privately placed infrastructure investment trusts (InvITs) was notified by capital markets regulator SEBI on Tuesday.
- The primary goal of the issue of subordinate units is to close any valuation gaps that can occur from different assessments of an asset made by the InvIT (as the asset buyer) and the Sponsor (as the asset seller).
- It further said that if any subordinate units had been issued and were still due, InvIT would not raise money through public issues. The Securities and Exchange Board of India (SEBI) changed the InvITs rule to have this effect.
Some of the obligations given:-
- 10% of all outstanding ordinary units issued by the InvIT should not be exceeded by the number of subordinate units issued at the time an infrastructure project is acquired.
- Only the sponsor, its partners, and the sponsor group will receive the subordinate units. There will be no voting or distribution rights attached to these units.
- Subordinate units may be issued in conjunction with regular units or apart from them in an initial offer or any later offer.
- The subordinate units will remain imprisoned until they are reclassified as ordinary units, which should take at least three years.
- Only the sponsors, their affiliates, and the sponsor group businesses are eligible to receive these units.
- The subordinate units will be converted into ordinary units, either entirely or in part, if the performance standard is met by the entitlement date.
- Subordinate units will be terminated without payment to their holder if the performance criterion is not met by the end of the entitlement period.
