Saturday, April 30, 2016

Foreign Investment in units issued by Real Estate Investment Trusts, Infrastructure Investment Trusts and Alternative Investment Funds

It has been decided to allow foreign investment in the units of Investment Vehicles registered and regulated by SEBI or any other competent authority. Investment Vehicle will include:

        Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations 2014;
        Infrastructure Investment Trusts (InvITs) registered and regulated under the SEBI (InvITs) Regulations, 2014;
        Alternative Investment Funds (AIFs) registered and regulated under the SEBI (AIFs) Regulations 2012.

‘Unit’ shall mean beneficial interest and shall include shares or partnership interests.

The salient features of the new investment regime are:

i) A non resident, including a Registered Foreign Portfolio Investor and a NRI may invest.

ii) The payment for the units acquired by a person resident or registered / incorporated outside India shall be made by an inward remittance or by debit to an NRE or an FCNR account.

iii)A non resident may sell or transfer his units in any manner or redeem the units as per regulations of SEBI or RBI.

iv) Downstream investment by an Investment Vehicle shall be regarded as foreign investment if either the Sponsor or the Manager or the Investment Manager is not Indian ‘owned and controlled’.

v)   In case the sponsors or managers or investment managers are organized in a form other than companies or LLPs, SEBI shall determine whether it is foreign owned and controlled or not.

vi) The extent of foreign investment in the corpus of the Investment Vehicle will not determine whether its downstream investment is foreign investment or not.

vii)  Downstream investment that is reckoned as foreign investment shall have to conform to the sectoral caps and conditions as applicable to the company in which the downstream investment is made.

viii)                  Downstream investment in an LLP that is reckoned as foreign investment has to conform to the provisions of the Principal Regulations as well as the FDI policy.

ix) An Alternative Investment Fund Category III with foreign investment shall make portfolio investment in only those securities or instruments in which a RFPI is allowed to invest.

x) The Investment Vehicle receiving foreign investment is required to report to RBI & SEBI in their prescribed format.

Foreign investment in any company or partnership firm or proprietary concern or any entity which is engaged “in real estate business, or construction of farm houses” is prohibited. However, it is also provided that “real estate business” shall not include development of townships, construction of residential /commercial premises, roads or bridges. It is now clarified that foreign investment in units of REITs registered and regulated under the SEBI (REITs) Regulations, 2014 will not be included in “real estate business” for the purpose of these regulations.
Based on RBI notification dated 21/04/2016. For any further clarification please refer ……….Poppy