The Securities and Exchange Board of India (SEBI) has introduced a standardized framework for calculating Net Distributable Cash Flow (NDCF) by Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), and their holding companies. Effective from April 1, 2024, this move aims to enhance the ease of doing business in capital markets. The NDCF computation, applicable to REITs, InvITs, and their HoldCo/SPVs, mandates a minimum distribution of 90% at the Trust and HoldCo/SPV levels, with the option to retain 10% subject to certain provisions. SEBI emphasizes cumulative periodic compliance and excludes restricted cash from NDCF computation.
The Securities and Exchange Board of India (SEBI) has taken steps toward promoting ease of doing business by introducing a standardized framework for calculating Net Distributable Cash Flows (NDCF) by Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), and their respective holding companies. This new framework is set to be effective from April 1, 2024.
As per these rules, the computation of Net Distributable Cash Flow is performed at the level of REITs, InvITs, and their associated holding companies (HoldCo) or special purpose vehicles (SPVs). One of the key provisions stipulates that the minimum distribution should be 90% of the NDCF at both the Trust and HoldCo/SPV levels. However, this is contingent upon the applicable provisions in the Companies Act or the Limited Liability Partnership Act.
SEBI has also outlined a provision allowing the retention of 10% distribution. This calculation involves aggregating the retention done at the SPV level and Trust level. Moreover, the regulator emphasizes that the Trust, in collaboration with its SPVs, must ensure that a minimum 90% distribution of NDCF is met for a given financial year on a cumulative periodic basis.
A noteworthy aspect of these regulations is the exclusion of any restricted cash from the NDCF computation by the SPV or InvIT. This ensures a more accurate representation of the available distributable cash flows, aligning with the broader objective of transparency and standardized financial reporting.
This move by SEBI underscores the regulator's commitment to streamlining financial practices in the capital markets and fostering a conducive environment for business operations. The standardization of NDCF calculations not only brings clarity to the distribution processes but also instils confidence in investors by establishing consistent and transparent financial norms across the REIT and InvIT sectors.
It is essential to note that the effective date of April 1, 2024, provides market participants with a timeline to adapt and implement the standardized framework. This grace period allows REITs, InvITs, and their holding companies to align their financial practices with the stipulated regulations.
This initiative comes on the heels of SEBI's recent efforts to address unclaimed funds of investors held by entities with listed non-convertible securities, REITs, and InvITs. The detailed procedures given by the regulator in this regard demonstrates a holistic approach to ensuring the integrity and accountability of financial operations within the capital markets.
In conclusion, SEBI's move to standardize the calculation of Net Distributable Cash Flows for REITs, InvITs, and their holding companies is a significant stride towards enhancing transparency, consistency, and ease of doing business in India's capital markets. By establishing clear guidelines for distribution and computation, SEBI aims to fortify investor confidence and facilitate a more robust financial ecosystem.
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