Fast track rights issues
Also written Fast track rights issue · Fast track issue
A quicker rights issue route for listed InvITs and REITs that meet SEBI's parameters — offer document filed with the stock exchanges, with only a copy to SEBI.
In plain language
When a listed InvIT or REIT wants to raise more money from its existing unit holders, it can make a rights issue. Ordinarily that means filing an offer document and going through the regular process.
If the trust has a clean, established record, SEBI allows a shortcut. Under the fast track route, the trust files the offer document with the stock exchanges and a copy with SEBI.
The condition is the record. The parameters are designed so that only trusts with at least three years of listing, meaningful public unitholding, good grievance redressal and no live regulatory trouble can use the faster route.
How it works
InvIT parameters (SEBI (InvIT) Regulations, 2014, as the workbook lists them). The fast track route is available where:
| # | Parameter |
|---|---|
| 1 | Units listed for at least 3 years immediately preceding the record date |
| 2 | All units in demat form on the record date |
| 3 | Average market capitalisation of public unitholding at least Rs 250 crore |
| 4 | Compliant with the listing and disclosure requirements of the Regulations |
| 5 | Redressed at least 95% of investor complaints till the end of the quarter immediately preceding the month of the record date |
| 6 | No SEBI show-cause notice pending against the InvIT, parties to it, or their promoters, partners or directors, as on the record date |
| 7 | None of them has settled any alleged violation of securities laws with SEBI in the 3 years before the record date |
| 8 | Units not suspended from trading as a disciplinary measure in the last 3 years |
| 9 | No audit qualifications on the audited accounts disclosed in the letter of offer |
REIT parameters (SEBI (REITs) Regulations, 2014) repeat all nine and add three more:
- no regulatory action imposed on the REIT in the three years preceding the year of the proposed rights issue;
- no conflict of interest between the lead merchant banker(s) and the REIT or parties to it;
- the sponsor(s) and sponsor group must subscribe to their rights entitlement and not renounce it, except within the sponsor group or to comply with minimum public shareholding norms.
Context. In the workbook these sit under Further Issues, alongside private placement for InvITs (minimum investment Rs 1 crore, 5 to 1,000 investors) and preferential offers or institutional placements for REITs.
A worked example
Illustrative figures. A listed road InvIT plans a rights issue of Rs 1,200 crore, record date 1 October.
Parameter 3 — average public unitholding market capitalisation.
Public units = 5.2 crore
Average price over period = Rs 58
Average public market cap = 5.2 crore × Rs 58 = Rs 301.6 crore → at least Rs 250 crore ✔
Parameter 5 — complaints. The record date falls in October, so count up to the end of the quarter ended 30 September: 1,840 received, 1,766 redressed.
1,766 ÷ 1,840 = 95.98% → at least 95% ✔
Parameter 1 — listed four years ✔. Parameter 2 — all units demat ✔. Parameter 6 — no pending show-cause notice ✔.
Parameter 7 — two years ago, the InvIT's investment manager settled an alleged disclosure lapse with SEBI. That is a settlement by a party to the InvIT within 3 years of the record date. Fast track is not available; the InvIT must use the regular route.
Had this been a REIT with the same facts, it would also have had to confirm the sponsor group will take up its full entitlement and that its lead merchant banker has no conflict of interest.
Why NISM asks about it
Chapter 16 (SEBI (InvIT) Regulations) and Chapter 17 (SEBI (REITs) Regulations), each under Further Issues — Rights issue through Fast track methods. Expect the 3-year listing, Rs 250 crore public market cap and 95% complaint thresholds, and a question on which additional conditions apply only to REITs.
Common exam traps
- The offer document is filed with the stock exchanges; SEBI gets a copy.
- Rs 250 crore is the average market capitalisation of public unitholding, not of the whole trust.
- 95% of complaints redressed, counted to the end of the quarter before the month of the record date.
- A past settlement with SEBI in the last 3 years disqualifies, even with no pending notice — and it covers the parties to the trust and their promoters, partners and directors.
- REITs have three extra conditions in the workbook: no regulatory action in 3 years, no lead merchant banker conflict, and the sponsor group must subscribe and not renounce.
- Every test is measured against the record date.
Where this is taught
Free preparation for NISM Series III-CRelated terms
- Record dateThe date on which a company looks at its register and decides who gets the bonus, dividend, rights or split — you must be holding the shares in your demat account at the end of that day.
- Rights issueAn offer of new shares at a set price to existing shareholders in a fixed ratio to what they already hold, so that their proportionate stake is not diluted when the company raises fresh capital.
- SponsorThe person or firm that sets up the mutual fund — applies to SEBI for registration, executes the trust deed in favour of the trustees, and puts up the capital of the AMC.
- InvITAn Infrastructure Investment Trust: a SEBI-regulated trust that pools investor money into infrastructure assets such as roads, power transmission lines and renewable energy projects.
- Real Estate Investment TrustA SEBI-registered trust that pools investors' money into commercial real estate and lists its units on a stock exchange, so rent-yielding property can be bought in small lots and sold in a day.
- Merchant bankerA SEBI-registered body corporate engaged in the business of issue management — arranging the selling, buying or subscribing of securities, or acting as manager, consultant or adviser in relation to an issue.