REITs to raise short-term debt at lower cost as Sebi allows issue of papers

Capital markets regulator Sebi's decision to allow Real Estate Investment Trust (REIT) to issue commercial papers will help in raising short-term debt at a lower interest cost, according to real estate industry experts.

REIT, a popular instrument globally, was introduced in India a few years ago to attract investment in the real estate sector by monetising rent-yielding assets. It helps unlock the massive value of real estate assets and enable retail participation.

At present, there are three listed REITs -- Embassy Office Parks REIT, Mindspace Business Parks REIT and Brookfield India Real Estate Trust -- on Indian stock exchanges, but all these are of leased office assets.

On Thursday, Sebi allowed emerging investment vehicles, REIT, and Infrastructure Investment Trust (InvIT), to issue commercial papers, subject to certain conditions.

Commercial Paper or CP in market parlance refers to a short-term debt instrument issued by companies to garner funds generally for a time period up to one year.

Welcoming the decision, Vinod Rohira, CEO, Mindspace Business Parks REIT, said: "Sebi's move to allow REITs to issue commercial papers provides an additional avenue of financing through short-term debt instrument at comparatively lower costs and shorter timelines."

This would aid in bringing down the cost of capital for 'AAA' rated REITs, he said.

Vikaash Khdloya, CEO, Embassy REIT, said the global REITs have long used commercial paper as a short-term financing option.

This will further reduce the cost of capital for REIT and deepen the available capital pools which already include banks, FPIs and insurers, he said.

"The introduction of commercial paper in India further validates the creditworthiness of REITs as they continue to transform commercial real estate sector in the country," Khdloya said.

Piyush Gupta, Managing Director, Capital Markets and Investment Services, Colliers India, said, the capital raising options for REITs have been opening up.

The Sebi's decision will provide an avenue to raise short-term debt at a lower cost and in a shorter turnaround time, he said.

Sebi's move came after Reserve Bank Commercial Paper Directions last month indicated that InvIT and REIT having net worth of at least Rs 100 crore are eligible to issue commercial papers.

REITs and InvITs need to abide by the guidelines prescribed by Reserve Bank of India (RBI) for issuances of commercial papers and follow the conditions of listing norms prescribed by Sebi.

The issuance of listed CPs should be within the overall debt limit permitted under the REITs and InvITs rules.

While a REIT comprises a portfolio of commercial real assets, a major portion of which is already leased out, InvITs comprise a portfolio of infrastructure assets such as highways and power transmission assets.