Blackstone-Embassy JV may prompt Sebi to tweak Reit norm

The Securities and Exchange Board of India (Sebi) is considering relaxing the minimum ownership required by a sponsor to launch a real estate investment trust (Reit). The move comes after a unique case, involving private equity (PE) major Blackstone and leading real estate firm Embassy, came to the market regulator’s notice. One of the properties owned by their joint venture (JV) company, Embassy Office Parks, is looking to be part of the proposed Reit. But, the sponsor holding in the property is 50 per cent, one per cent below the 51 per cent threshold set by the Sebi.

The property in contention is Embassy Golf Links, an office park located off Intermediate Ring Road in Bengaluru. This property is again a 50:50 JV between Embassy Office Parks and K J George, development minister for Bengaluru. But, the latter doesn’t want to participate in the Reit, nor does he want to dilute the holdings, said people with the knowledge of the developments. Hence, the sponsor holding doesn’t meet the threshold requirement.

Embassy Golf Links has 4.5 million square feet of fully developed office space, including 21 office buildings, two retail blocks and a Hilton hotel. Its top clients include IBM India, Microsoft, Fidelity, JPMorgan and Swiss Re.

“The Blackstone-Embassy JV is close to launching a Reit. They have asked the Sebi to look into relaxing the sponsor threshold requirement. If the relaxation doesn’t come, then the Reit could be dropped,” said an investment banker with the direct knowledge of the developments. Sources said the issue is pending with the Sebi for some months and the regulator might consider a rule change in the upcoming board meeting scheduled for December 28.

“The rationale behind the rule that a sponsor needs to have at least 51 per cent stake in a Reit is to ensure that the sponsor remains committed. However, even 50 per cent shareholding is a good enough threshold to prove commitment. In my view, Sebi shouldn’t have an issue reducing the shareholding norm to 50 per cent,” said Sanjay Dutt, chief executive officer-India operations & private funds, Ascendas-Singbridge.

Blackstone-Embassy were looking to file an offer document for a ~6,000-crore Reit this year. The plan has been deferred to 2018 as some regulatory issues had to be ironed out. When contacted, a spokesperson said, “Blackstone has no comment to make.” Embassy could not be reached for comments.