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Subject: Amendment to Master Circular for Real Estate Investment Trusts (REITs) dated May 15, 2024 – Board nomination rights to unitholders of REITs
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Key Points:
Background and Existing Provision:
- The original Master Circular for REITs dated May 15, 2024, includes a provision under Para 18.2.2. (b) regarding "Board nomination rights to unitholders of REITs." It specifies that eligible unitholders who hold a certain threshold of units are entitled to nominate only one Unitholder Nominee Director.
- If an entity (or its associate) already has the right to nominate directors on the Board of Directors of the REIT Manager due to its status as a shareholder or lender, that entity, in its capacity as a unitholder, cannot nominate or participate in the nomination of a Unitholder Nominee Director.
Market Clarification:
- Market participants requested clarity on whether a unitholder, who also has nomination rights as a lender to the REIT or its associated entities (Manager, HoldCo(s), or SPVs), can nominate a director on the Board of Directors of the REIT Manager.
Amendment Introduced:
- SEBI has introduced an amendment to the Master Circular to promote ease of doing business. Based on industry requests and recommendations from the Hybrid Securities Advisory Committee (HySAC), a proviso has been added under paragraph 18.2.2. (b) of the Master Circular.
- New Proviso: The restriction on nominating a Unitholder Nominee Director will not apply if the right to appoint a nominee director is available under clause (e) of sub-regulation (1) of regulation 15 of the SEBI (Debenture Trustees) Regulations, 1993.
Implementation:
- The amendment is effective immediately from the date of the circular, i.e., August 06, 2024.
Regulatory Authority:
- This circular is issued under the powers granted to SEBI by Section 11(1) of the SEBI Act, 1992, and Regulation 4(2)(g) of the SEBI (Real Estate Investment Trusts) Regulations, 2014.
Dissemination:
- Recognized Stock Exchanges are instructed to publish the content of this circular on their respective websites.
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Some Multiple Choice Questions (MCQs) for Exam Preparation:
Under the original provision of the Master Circular, how many Unitholder Nominee Directors can an eligible unitholder nominate?
- a) Two
- b) Three
- c) One
- d) None
Answer: c) One
What prompted SEBI to amend the Master Circular for REITs?
- a) Request from stock exchanges
- b) Clarity sought by market participants and industry recommendations
- c) Government directive
- d) Change in global REIT regulations
Answer: b) Clarity sought by market participants and industry recommendations
According to the amendment, when does the restriction on nominating a Unitholder Nominee Director not apply?
- a) When the unitholder is a foreign entity
- b) When the right to appoint a nominee director is available under SEBI (Debenture Trustees) Regulations, 1993
- c) When the unitholder holds more than 50% of the units
- d) When the unitholder is also a shareholder of the Manager
Answer: b) When the right to appoint a nominee director is available under SEBI (Debenture Trustees) Regulations, 1993
From which date does the amendment to the Master Circular come into effect?
- a) July 15, 2024
- b) August 01, 2024
- c) August 06, 2024
- d) September 01, 2024
Answer: c) August 06, 2024
