SEBI Notified Framework for Issue of Subordinate Units in Privately Placed InvITs

Current Context: On May 28, 2024, the Securities and Exchange Board of India (SEBI) notified a framework for the issuance of subordinate units by privately placed Infrastructure Investment Trusts (InvITs).

• This issuance is intended to bridge the valuation gaps that may arise due to the difference in the valuation of an asset assessed by the Sponsor and the InvIT.
• The subordinate units would only be issued by a privately placed InvIT upon acquisition of an infrastructure project.
• InvIT would not raise funds through public issues if any subordinate units have been issued and are outstanding.
• The subordinate units shall be issued only to the sponsor, its associates and the sponsor group and shall be deemed to be a part of the consideration for the acquisition of the infrastructure project from such sponsor, its associates and the sponsor group.
• These units will not carry any voting rights or distribution rights, and need to be issued in a dematerialized form with an International Securities Identification Number, distinct from that of the ordinary units.
• The subordinate units would be listed on a recognised stock exchange after their reclassification into ordinary units.

Question:

1. What is the purpose of the issuance of subordinate units by privately placed Infrastructure Investment Trusts (InvITs) as notified by SEBI?

• A) To bridge the valuation gaps that may arise due to the difference in the valuation of an asset assessed by the Sponsor and the InvIT
• B) To increase the market capitalization of InvITs
• C) To raise funds through public issues
• D) To provide voting rights to the sponsor

Answer: A) This issuance is intended to bridge the valuation gaps that may arise due to the difference in the valuation of an asset assessed by the Sponsor and the InvIT.