The Securities and Exchange Board of India (SEBI) has proposed measures to improve the operational framework for (REITs) and infrastructure investment trusts (InvITs). These proposals, outlined in two consultation documents, aim to improve the flexibility of businesses while protecting the interests of investors.

SEBI plans to allow REITs and Small and Medium REITs (SM REITs) to use interest rate derivatives, such as swaps, to hedge against interest rate fluctuations.

This change is intended to stabilize cash flow and mitigate risks associated with long-term infrastructure projects.

Additionally, the regulator proposes to recognize term deposits as cash equivalents in leverage calculations for REITs and InvITs.

This clarification, along with refined credit rating requirements for borrowing, is expected to improve financial management within these entities.

To facilitate better asset management, SEBI suggests allowing transfer of locked-in units for REITs and InvITs between sponsors and their affiliates, similar to existing rules for promoters of listed companies.

This initiative aims to maintain sponsors’ “skin in the game” while providing them with greater flexibility.

The governance standards for quarterly reporting of InvITs should also be changed. The proposed changes will require quarterly results to reflect the performance of InvITs themselves, thereby aligning them more closely with REIT regulation. Additionally, the regulator recommends allowing a mix of independent and non-executive directors in the nomination and remuneration committees (NRCs) of REIT and InvIT managers, reflecting the governance structure of listed companies.

SEBIs the proposals expand the definition of “common infrastructure” to include facilities such as power plants and water treatment systems that serve multiple REIT assets. These facilities can operate independently of specific project locations, thereby improving operational efficiency.

Additionally, the introduction of liquid mutual fund investments for REITs is expected to provide new diversification options for cash flow management.

SEBI is seeking public comments on these proposed amendments until November 13.