Recently the Securities and Exchange Board of India (“SEBI”) published on its website, an informal guidance dated June 29, 2021 (“Informal Guidance”) in connection with the SEBI (Infrastructure Investment Trusts) Regulations, 2014 (“InvIT Regulations”) in response to a request from Ambit Private Limited. Tower Infrastructure Trust (“Tower InvIT”) is a privately placed listed infrastructure investment trust registered with SEBI. Tower InvIT proposes to acquire the securities of Space Teleinfra Private Limited (“Target SPV”) in consideration of a combination of cash and fresh issuance of units of Tower InvIT (by way of preferential issue) in exchange for the securities held by the existing shareholders of the Target SPV (“Existing Shareholders”).
Tower InvIT had submitted to SEBI that the InvIT Regulations specify the conditions applicable for an initial offer of units by a to be listed InvIT. However, they do not specify the conditions for any subsequent issue of units by a listed InvIT, and only state that such issue must be in the manner specified by SEBI. SEBI’s ‘Guidelines on preferential issues and institutional placements by listed InvITs’ issued vide its circular dated November 27, 2019 (“Preferential Issue Guidelines”) do not contain any restrictions on the nature of the investors in case of a preferential issue and in fact envisages allotment to individuals by referring to participation by directors etc. Tower InvIT had also submitted that there is no restriction on allotment of units to natural persons under the InvIT Regulations.
In view of the above, Tower InvIT had raised the following query:
“Whether a privately placed listed InvIT (in this case Tower InvIT) which fulfils the eligibility criteria for undertaking a preferential issue under the InvIT Regulations is permitted to issue and allot units to natural persons (in this case the Existing Shareholders) under the Preferential Issue Guidelines in exchange for receipt of the securities of the Target SPV?”
SEBI has observed that under the InvIT Regulations, “preferential issue” means an issue of units by a listed InvIT to any select person or group of persons on a private placement basis and does not include an offer of units made through a public issue, rights issue, bonus issue, qualified institutions placement or any other issue as may be specified by the Board. Further, under Regulation 2(1)(zoa) of the InvIt Regulations, “private placement” means an issue of units by an InvIT to any select person or group of persons and does not include an offer of units made through a public issue. SEBI further observed that Regulation 14(2) of the InvIT Regulations provides as follows:
“If the InvIT raises funds by way of private placement –
Based on the above, SEBI has opined in the Informal Guidance that even though the Preferential Issue Guidelines are silent on the aspect of issuance of units by an InvIT on private placement basis to individuals, in terms of Regulation 14(2) of the InvIT Regulations, an InvIT may raise funds on a private placement basis from institutional investors and body corporates only. Therefore, an offer and allotment by InvIT on private placement basis, whether initial or further, can be made only to institutional investors and body corporates only.
Please find a copy of the Informal Guidance, here.
This update has been by contributed by Smriti Tripathi (Associate).
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