Unlocking Infrastructure Potential – SEBI's New Framework For Subordinate Units In InvITs

Introduction

In an effort to enhance flexibility in asset acquisition transactions and facilitate ease of doing business, the Securities and Exchange Board of India (SEBI), has made a significant amendment to the regulations governing Infrastructure Investment Trusts (InvITs) vide the SEBI (Infrastructure Investment Trusts) (Amendment) Regulations, 2024 (Amendment). The Amendment introduces a new framework for issuance of 'subordinate units' by privately placed InvITs aiming to address the cash flow and valuation gaps, that emerge between the sponsor (as asset seller) and the InvIT (as an asset buyer). This gap arises due to differing value expectations of infrastructure assets. Subordinate units bridge this gap by offering a flexible payment solution. In case cash flow falls short due to differing valuation expectations, these units allow part of the consideration to be paid to sponsors, sponsor group and/or their associates (as seller(s)) (Eligible Entities)