SEBI Proposes Easing Lock-in Norms for Conversion of Private InvITs to Public InvITs

In a move aimed at enhancing ease of doing business and improving market liquidity, the Securities and Exchange Board of India (SEBI) has proposed significant relaxations in lock-in requirements for Infrastructure Investment Trusts (InvITs) transitioning from private to public status.

Under the proposed changes, SEBI suggests removing the lock-in on both the minimum sponsor contribution and any excess units held by the sponsor during the conversion of a privately listed InvIT into a publicly listed one. This is expected to address industry concerns and align regulations with recent amendments introducing perpetual unitholding norms.

Current Lock-in Provisions

As per existing guidelines, sponsors are required to contribute at least 15% of the total units offered to the public or 15% of the post-issue capital—whichever is higher—subject to an 18-month lock-in from the date of listing. Units held beyond this minimum are locked in for one year.

However, market participants have urged SEBI to revisit these lock-in requirements, particularly because sponsors in many cases have already fulfilled extended holding periods under earlier rules.

Regulatory Evolution

When SEBI initially framed the lock-in norms in February 2022, there was no perpetual unitholding requirement. Sponsors were only required to maintain a 15% holding for three years post-listing. But with the August 2023 amendment, the InvIT regulations were updated to introduce a perpetual minimum unitholding mandate for sponsors and sponsor groups. This change means that sponsors must now maintain a specified ownership level indefinitely following public listing.

SEBI noted that when a private InvIT transitions to public status and new units are issued, sponsors’ commitments effectively increase to comply with these ongoing holding requirements—making the earlier lock-in provisions redundant and unnecessarily restrictive.

Proposed Relief for Non-Sponsor Unitholders

SEBI has also proposed scrapping the one-year lock-in currently imposed on non-sponsor unitholders during the conversion process. Presently, units held before the public issue by entities other than sponsors are subject to a one-year lock-in post-listing.

Several stakeholders have argued that investors who have already committed capital to the InvIT should not face additional restrictions during conversion. Some even suggested reducing the lock-in to six months, if not eliminating it entirely.

SEBI acknowledged that public market investors expect units of InvITs to be freely tradable, and applying lock-in periods during conversion contradicts this premise. Additionally, it may deter institutional investors such as mutual funds, pension funds, and insurance companies—many of whom are restricted by the liquidity terms of their investment mandates—from participating.

Enhanced Liquidity and Disclosure Alignment

SEBI emphasised that transitioning from a private to a public InvIT would increase market accessibility and liquidity, notably by reducing the trading lot size from ₹25 lakh to a single unit.

To streamline the process further, SEBI also proposed that the offer of units made to the public as part of the conversion process should follow the same procedural and disclosure requirements as those applicable to follow-on public offerings.

The regulator has invited comments from stakeholders on the draft circular until July 22, 2025, before finalising the proposed amendments.

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