Yesterday's #Sebi paper highlights a troubling trend with REIT and InVITs. Quick recap, a REIT pools money to invest in commercial prop. InVIT does same for infra projects. Problem? The sponsors can take long term debt on these entities while selling their own stake after 3 years
REITs can raise debt up to 49% of their assets (70% for InVITs). This debt is generally used to buy assets from the sponsor only. So, say builder A creates a REIT, sells the REIT its projects (by loading up debt on the REIT) and then quietly makes an exit. Entirely possible.
Much of this debt is long term (10 years or more) and this debt structure gets created before listing the REIT/InVIT. Does the sponsor have to live with the debt it took? The sponsor must hold at least 25% of units till 3 years after listing. See the mismatch?
So Sebi wants the sponsor locked in for longer. Will it be enough to solve the problem? Frankly I don't know. What do you think?
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