Richa ChoudharyPartner
Maitreya RajurkarSenior Associate
Key Developments
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Framework for social stock exchanges revised following India’s first listing of zero coupon zero principal instruments
The Securities and Exchange Board of India (SEBI) introduced the social stock exchange framework in 2022. December 2023 saw the first-ever listing of zero coupon zero principal instruments, demonstrating a viable means of raising social finance. On the basis of the feedback received from market participants during this listing, such as lack of access to retail donors and difficulty in achieving the minimum issue size, SEBI has made various changes to the regulatory framework to make social fund raising easier.
SEBI notified a circular on 28 December 2023, and amendments to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, on 21 December 2023, bringing about the following key changes to the social stock exchange fund raising framework:
- The minimum issue size for zero coupon zero principal instruments has been reduced from INR 1 crore to INR 50 lakh.
- The minimum application size has been reduced to INR 10,000 and retail investors have been permitted to access social stock exchanges (which was previously limited to institutional and non-institutional investors).
- The requirement of a social auditor, who was responsible for auditing the annual impact report of a non-profit organisation (NPO), has been replaced with a social impact assessor.
These changes should open up an entirely new investor class for social finance, which will deepen the capital pool available to NPOs. Further, the reduced issue size should facilitate successful issuances.
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Additional route prescribed for infrastructure investment trusts to achieve minimum public shareholding
As infrastructure investment trust (InvIT) activity increases in India, SEBI has been fine-tuning the regulatory framework governing InvITs.
On 27 June 2023, SEBI had issued a circular prescribing certain routes to achieve the minimum public unitholding requirement of 25% prescribed for InvITs under the SEBI (Infrastructure Investment Trusts) Regulations, 2014 (SEBI InvIT Regulations), to be achieved within three years of the date of listing. These included routes such as offer for sale, rights issue or bonus issue to public shareholders, institutional placement, and sale and transfer of units.
By a circular dated 31 October 2023, SEBI has also permitted the issuance of units through preferential allotment to help InvITs to achieve the minimum public shareholding requirement.
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Operational framework introduced to transfer unclaimed amounts to Investor Protection and Education Fund and refund claims under the InvIT and REIT Regulations
The SEBI InvIT Regulations and the SEBI (Real Estate Investment Trusts) Regulations, 2014 (SEBI REIT Regulations), mandate that 90% of the net distributable cash flows of InvITs and real estate investment trusts (REIT) are distributed to unitholders, and any unclaimed amounts are transferred to the SEBI established Investor Protection and Education Fund (IPEF). To provide further clarity on handling unclaimed funds and to provide recourse to unit holders, SEBI has issued an operational framework to help unit holders reclaim amounts transferred to the IPEF.
Under this framework, amendments to the SEBI InvIT Regulations and the SEBI REIT Regulations (collectively, Amendment Regulations) have been notified, introducing provisions that enable the reclaim of amounts that have been transferred to the IPEF.
SEBI also issued two circulars on 8 November 2023 to provide a detailed framework for the transfer of unclaimed amounts to an escrow account/unpaid distribution account, and then onwards to the IPEF along with a refund claim process. These circulars operationalise the provisions of the Amendment Regulations.
