SEBI’s decision on the special purpose vehicle (SPV)

SEBI’s decision on the special purpose vehicle (SPV)

 The SEBI is likely to reduce the minimum holding requirementof the trusts(REITs and InvITs) in the SPV to 50 per cent from existing 51 per cent

Possible effects of the decision

The decision may ease acquisition of assets by Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs)The move is expected to give stimulus to the real estate sector in the country

Current regulations

The current regulations require that a REIT should hold not less than 51 per cent of equity share capital in the underlying SPV

Special Purpose Vehicle

A special purpose vehicle/entity(SPV/SPE) is a subsidiary company with an asset/liability structure and legal status that makes its obligations secure even if the parent company goes bankrupt

An SPV/SPE is also a subsidiary corporation designed to serve as a counterparty for swaps and other credit sensitive derivative instrumentsAlthough the SPVs/SPEs are used to isolate financial risk, due to accounting loopholes, these vehicles may become a financially devastating way for CFOs to hide debt

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