INDIA Law and Practice Contributed by: Vivek Chandy, Archana Tewary, Kumarmanglam Vijay and Megha Arora, JSA
FDI may be through subscription to equity shares/compulsorily convertible instruments, and must comply with pricing guidelines and reporting obligations prescribed by the RBI. Each phase of a construction development project would be considered as a separate pro - ject, so an investor can potentially exit before the completion of an entire project, subject to a lock-in period of three years (see 2.11 Legal Restrictions on Foreign Investors ). REITs REITs in India are private trusts set up under the Indian Trusts Act, 1882 and compulsorily reg - istered with SEBI. The set-up of REITs would include the sponsor (who sets up the REIT), the manager (who manages the REIT’s assets, investment and operations) and the trustee (a SEBI-registered debenture trustee who is not an associate of the sponsor or manager, and who holds the REIT assets in trust for the benefit of the unitholders/investors). REIT Regulations have been modified to permit REITs to issue debt securities for raising funds, among other things. Furthermore, SEBI has recently amended the REIT Regulations to introduce the concept of SM REITs, with a reduced size of qualifying assets between INR500 million and INR5 billion. This is in contrast to the requirement to have REIT assets with a value of INR5 billion for an initial public offering for non-SM REITs and a minimum initial offering size of INR2.5 billion. AIFs AIFs are privately pooled investment vehicles that collect funds from investors (Indian or for - eign) for investments, and are regulated by the SEBI (AIFs) Regulations 2012. AIFs must be registered with SEBI, and may invest as private equity or debt funds, or both. The RBI has sought to prevent AIFs from being used by regulated
entities (banks and non-banking financial com - panies (NBFCs)) to evergreen loans, by restrict - ing the ability of AIFs to invest in the securities (other than equity shares) of debtor entities of such regulated entities, if such regulated entities are also limited or general partners in the AIFs. This is the subject of ongoing discussion. Debt Financing The most common means of fundraising for real estate developers is by the issuance of non-con - vertible debentures (NCDs) to NBFCs, banks, financial institutions and other private credit funds. Debt investments by banks are subject to certain prudential norms relating, inter alia, to bank exposure to such investments, as stipu - lated by the RBI. While previously a preferred means of raising funds, market conditions have affected investments by NBFCs of late. Effective from 1 October 2022, the RBI has stipulated that real estate developers must obtain all the per - missions required from the relevant government/ other statutory authorities for the project prior to funding by such NBFCs for the development of the real estate project – this has restricted access to funds by the real estate developers in the early stages of the project development from banks and NBFCs. Private credit funds have stepped into this space and typically invest in debt or hybrid securities issued by real estate developers for funding requirements. ECBs The RBI has eased the definition of beneficiaries eligible for ECBs to include all entities that can receive FDI. Funds borrowed under ECBs can - not generally be used for real estate activities, except for: • the construction/development of industrial parks/integrated townships/special economic zones;
348 CHAMBERS.COM
Powered by FlippingBook