The State Bank of Pakistan (SBP) has given general permission to REIT Management Companies (RMC) to issue their units through private placements and transfer such units, in favor of non-residents. This step is taken to attract foreign investment in Real Estate Investment Trust schemes. Previously, non-residents were only allowed to invest in REIT Schemes listed on Stock Exchange and through new public offers.
REIT Schemes: Attracting Foreign Investment
According to a circular issued by SBP’s Exchange Policy Department to authorized dealers (Ads) in foreign exchange, SBP has amended some paragraphs of Chapter 20 of the Foreign Exchange Manual to provide more investment avenues to foreign investors. Precisely, the existing para 6 (A)(IV), 6(B)(IIIA), 6(B)(IV), 6(B)(VI), 7(i), 7(iia), 7(vi)(a), 7(vi)(d), 7(vi)(h), 7(vi)(i) and 7(vii)(C) of Chapter 20 of Foreign Exchange Manual, have been replaced.
Details of Amended Paragraphs
- As per Para 6(A)(IV), a company or firm (including a partnership) or trust or mutual fund or private fund, or real estate investment trust (REIT) fund incorporated, registered, and functioning outside Pakistan, excluding entities owned or controlled by a foreign government.
- Para 6(B)(IIIA) allows private placement for issuance of new units of private funds established and operated by Private Fund Management Companies licensed by SECP to provide private equity, and venture capital fund management services; REIT Funds established and operated by REIT Management Company licensed by SECP.
- Para 6(B)(IV) allows the transfer of shares/units of companies/funds covered by sub-para (III), (IIIA), and (IIIB) of Chapter 20 of the Foreign Exchange Manual, under offer for sale or any other arrangement.
- According to 6(B)(VI) issue of rights shares and bonus shares and issuance of additional units as right or bonus and/or reinvestment of dividends in all those cases where shares/units are held on repatriable basis by ‘persons resident outside Pakistan’ in accordance with the general or special permission of the State Bank.
- Amended Para 7(i) allows the REIT companies for opening foreign currency collection accounts with banks abroad or in Pakistan for receiving the subscription in foreign currency
- According to Para 7(iia), in the case of remittance of subscription money directly to Pakistan and its payment to the fund’s rupee account (opened in the name of trustee), private funds/REIT funds may issue units, in terms of paragraph 6(B)(IIIA), for the rupee equivalent paid by the concerned Authorized Dealer as shown in the Proceeds Realization Certificate (s).
- The amended Para 7(vi)(a) said that in case of issue of ordinary shares including Modaraba Certificates/Trust and Fund Units out of public offers under paragraph 6 (B) (I) Bank’s Proceeds Realization Certificate (PRCs) in original with a copy of the consent/permission of the Securities & Exchange Commission of Pakistan (SECP).
- Para 7(vi)(d) mentioned that in case of issue of rights shares or units of REIT funds through right under paragraph 6 (B) (VI) PRCs in original with a copy of Board’s Resolution.
- As per Para 7(vi)(h), in case of transfer of listed shares and units of funds under paragraph 6 (B) (II) Stock Broker’s Memo and PRCs in respect of the cost of shares/units and transfer stamp money, both in original. Where the sale of shares/units is negotiated privately, documents establishing the deal and the price of the share/unit on the Stock Exchange on the date of the deal should be furnished.
- According to Para 7(vi)(i), in case of transfer of shares/units of unlisted companies/funds under paragraph 6 (B) (IV) Auditor’s certificate for break-up value or net asset value in original, a copy of the audited accounts of the respective year, documentary evidence of the agreed sale price and original PRCs in respect of the cost of shares/units and transfer stamp money (if applicable).
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