INDIA Law and Practice Contributed by: Vivek Chandy, Archana Tewary, Kumarmanglam Vijay and Brijita Prakash, JSA
not been defined but is typically linked to 10% of the shareholding being held by the benefi - cial owner in any investing/acquiring entity. This approval requirement will also be triggered in a transfer of ownership of any existing/future FDI in an Indian entity which directly/indirectly results in the beneficial ownership falling within the above restriction. Certain additional conditions may apply, espe - cially under any project-specific approvals obtained, lease documents, etc, if, for instance, a foreign entity is gaining control over an Indian investee entity, or if there is any reconstitution of the board of directors of the Indian investee entity, or where the Indian investee entity takes on additional debt and if any charge is created on the project land, etc. Typical fundraising means for real estate com - panies include FDI, REITs, alternative invest - ment funds (AIFs) and debt financing (loans/debt capital markets, external commercial borrowings (ECBs)). FDI The foreign exchange regime prohibits foreign investment into companies that are engaged purely in “real estate business” . FDI up to 100% is permitted under the automatic route for com - panies engaged in construction development and industrial park development, subject to cer - tain limited conditions. Entities engaged in real estate broking services are also permitted to receive up to 100% FDI under the automatic route. Earning of rental 3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate
income is also not considered real estate busi - ness. FDI may be through subscription to or purchase of equity/equity-linked instruments and must comply with pricing guidelines and reporting obligations prescribed by the Reserve Bank of India (RBI). Each phase of a construction development pro - ject would be considered a separate project, so an investor can potentially exit before the com - pletion of an entire project, subject to a lock-in period of three years, as mentioned above. 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, manager and trustee (which must be a SEBI-registered debenture trustee that is not an associate of the sponsor or manag - er). The REIT regulations have been modified to permit, inter alia, REITs to issue debt securities for raising funds. Further, SEBI has amended the REIT regulations to introduce the concept of SM REITs, with a reduced size of qualifying assets between INR500 million and INR5,000 million. Non-SM REITs must have assets to the value of INR5,000 million for an initial public offering and a minimum initial offering size of INR2,500 million. 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 compulsorily registered with SEBI. AIFs 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-bank -
442 CHAMBERS.COM
Powered by FlippingBook