SEBI: Revised Pricing Methodology for Institutional Placements of Privately Placed InvIT (Infrastructure Investment Trust)

Abhishek Kumar

30 Mar, 2024

The Securities and Exchange Board of India (SEBI) issued a circular (CIRCULAR SEBI/HO/DDHS/DDHS-PoD/P/CIR/2024/10) dated February 8, 2024, to address all the potential stakeholders including Infrastructure Investment Trusts (InvITs), parties engaged in InvITs, recognized stock exchanges, depositories, and merchant bankers. This SEBI circular revised the Pricing Methodology for Institutional Placements of Privately Placed Infrastructure Investment Trust (InvIT).

SEBI Circular: NAV-based Pricing for Privately Placed InvITs’ Institutional Placements”

SEBI’s recent circular refers to significant changes in the pricing methodology for institutional placements of privately placed Infrastructure Investment Trusts (InvITs). This circular intends to streamline and simplify the entire process of pricing by shifting the stock exchange-based pricing system to NAV-based pricing to ensure ease of doing business within this sector.

Key highlights of this circular

Previous Pricing Methodology:

Previously, as per the SEBI under regulation 14(4) (Infrastructure Investment Trusts) Regulations, 2014, institutional placements of InvITs were supposed to come under the pricing guideline mentioned in the SEBI Master Circular for InvITs, dated July 6 2023. The said circular specified that the pricing for institutional placements must not be less than its average of the weekly high and low closing prices of stocks listed on stock exchanges during the 2 weeks preceding date.

Revised Pricing Methodology:

SEBI’s recent circular shifted pricing from the previous methodology. Upon the request of the industry and several recommendations from the Hybrid Securities Advisory Committee (HySAC), the SEBI authority came to a decision to revise the pricing guidelines accordingly. Effective immediately, the floor price for institutional placement of privately placed InvITs will depend upon the Net Asset Value (NAV) per unit of the InvIT. It showcases that the pricing will now be made on the basis of the full valuation of all existing InvIT assets in accordance with the InvIT norms.

Implications:

SEBI revision includes different implications for market participants and stakeholders.

Simplified Pricing Process:

SEBI aligned the pricing methodology with NAV per unit to streamline the entire pricing process for institutional placements. This proactive approach of SEBI is more likely to facilitate and enhance clarity with more transparency among investors and other potential market participants. 

Promoting Ease of Doing Business:

SEBI decided to shift the base pricing on Net Assets Value (NAV) with an intent to promote the ease of doing business within the infrastructure sector. This effort has streamlined the entire pricing process for privately placed InvITs and ensured the potential to reduce administrative burden and enhance the market effectively and efficiently.

Enhanced Market Transparency:

Pricing for institutional placements depends upon the NAV evaluation, which is more likely to increase the transparency in the market and provide a clear picture of the underlying assets value of InvITs. Such proactive efforts may contribute to enhancing the confidence among investors and other potential market participants.

Regulatory Flexibility:

This revised pricing methodology showcases SEBI’s commitment and responsiveness to industry feedback and provides regulations for the ever-evolving securities market. This effort shows an effective balance among the regulatory overseers and facilitates market growth. 

Immediate Effect:

The circular is effective immediately after its issuance. In a broader sense, the said circular provisions must be followed without delay.

Legal Authority:

The circular is issued under the conferred power specified by section 11(1) of the Securities and Exchange Board of India Act, 1992, which enables the SEBI to formulate regulations and norms to regulate the securities market within India. Moreover, this shows regulation 33 of InvITs (Infrastructure Investment Trust), which itself is a significant and specific regulation concerned with investment trusts in infrastructure projects.

Approval:

The said circular was issued after obtaining requisite approval from the competent authority, which shows that this has undergone the requisite review and authorization process within SEBI or other relevant regulatory bodies.

Availability:

The circular can be easily accessed by the general public on SEBI’s official website @www.sebi.gov.in. Thereby, this circular can be found under the ‘Legal category’ within the SEBI ‘circulars’ section. It is more likely to be easy to access for stakeholders and refer to it accordingly for compliance purposes.

Conclusion:

In conclusion, SEBI revised the pricing methodology for privately placed InvITs, which remarks a significant regulatory development within the Indian infrastructure investment landscape. With a proactive approach to shifting the traditional pricing method to NAV-based pricing, SEBI intends to streamline the entire pricing process, ensure transparency and promote the ease of doing business in the market. Market participants are advised to become familiar with this updated SEBI guideline to ensure effective and efficient regulatory compliance and access opportunities in the ever-evolving InvITs market landscape.