InvITs Push for Overhaul in M&A Guidelines
Infrastructure Investment Trusts (InvITs) in India, managing assets worth ₹7 lakh crore, are urging regulators to streamline M&A rules to encourage greater investor participation. The sector believes that simplified merger and acquisition processes will make InvITs more attractive to both institutional and retail investors, thereby fueling sector growth and boosting confidence in the asset class. The current regulatory framework for InvITs’ mergers and acquisitions is seen as complex and, in some cases, more restrictive than those governing listed companies.
The Current State of M&A Rules for InvITs
Presently, M&A rules for InvITs require that any change of control must receive approval from 75% of all unit holders, excluding the sponsor. This contrasts with the open offer guidelines for listed companies, where an acquirer taking a 25% or greater stake must make a further offer to buy up to 26% of the shares held by public shareholders. For InvITs, if fewer public unit holders agree to the change, the acquirer is theoretically obligated to purchase the units of those who do not consent—potentially resulting in a significantly higher acquisition than anticipated.
Industry executives argue that this framework creates undue liability and complexity for potential buyers, discouraging investment and making the InvIT M&A process less efficient. With 24 listed InvITs across sectors such as roads, power transmission, renewables, telecom, and gas pipelines, stakeholders believe that revising these rules is essential to keeping pace with the rapidly evolving infrastructure landscape.
Industry Voices Call for Parity with Listed Companies
The call for reform is gaining momentum among InvIT industry leaders. Danny Samuel, CEO of Roadstar Trust—a leading publicly listed InvIT—emphasizes the growing opportunities for changes in sponsors and the need for a regulatory environment that supports such transitions. Samuel notes, “Incoming buyers may end up acquiring a much larger portion of public or non-sponsor units under the current regime, which can be a significant deterrent.”
The Bharat InvITs Association has submitted a white paper to the Securities and Exchange Board of India (Sebi), advocating for regulations that mirror the open offer requirements for listed equity holders. By aligning InvIT M&A rules with those of established public market practices, the sector hopes to foster a more predictable and investor-friendly environment.
Challenges in Achieving Approval Thresholds
Harsh Shah, Managing Director of Indigrid (a KKR-backed InvIT), points out that the current 75% approval threshold can be difficult to achieve, especially for widely held InvITs with significant institutional and retail participation. “The representation suggests linking the approval threshold to unitholders present and voting, similar to several other listed market processes,” Shah explains. This adjustment could ease the burden on acquirers and streamline transactions.
Some experts advocate for adopting tried-and-tested mechanisms from the existing takeover code for listed companies. Such changes could simplify M&A rules for InvITs, making deals more feasible and improving overall market efficiency. Minor modifications in how approval thresholds are calculated could also make a significant difference, according to market observers.
Balancing Investor Protection and Market Growth
While the drive for easier M&A rules is strong, the current regulatory framework for InvITs is designed to protect minority unitholders. Nikhil Naredi, partner at Shardul Amarchand Mangaldas, notes that the existing structure gives minority investors both a vote on sponsor changes and an exit offer if the vote fails. “A change in the way such votes are counted will make the framework more beneficial for all parties,” he says.
An investment banker added that aligning dissenting unitholder exits with a transparent open-offer framework could strengthen minority investor confidence and improve governance credibility. By making M&A rules more transparent and straightforward, InvITs can better balance the interests of both sponsors and minority investors, fostering trust and stability in the marketplace.
The Road Ahead for InvIT M&A Reform
With the sector’s assets under management growing rapidly and more InvITs coming to market, the push for regulatory reform is timely. Industry stakeholders believe that revising M&A rules will unlock greater investment potential and enhance the overall appeal of InvITs as an asset class. As regulators consider industry proposals, the focus remains on striking the right balance between streamlined processes and robust investor protection.
Ultimately, simplifying M&A rules for InvITs could set the stage for increased deal activity and deeper investor engagement, positioning the sector for sustained growth.
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