SEBI Vs Hindenburg: What Are REITs And The Controversy Around Them?

Hindenburg Research has made headlines again, this time with some serious allegations against SEBI Chairperson Madhabi Puri Buch. And part of the controversy is a financial tool called REITs, or Real Estate Investment Trusts.

So, what are REITs, and why is Hindenburg bringing them up? In this video, we'll break it all down.

Here’s what you need to know.

Hindenburg claims that Buch as the SEBI chair has introduced a series of rules that seem to favor REITs. And this could potentially be a conflict of interest since these regulations have especially benefited Blackstone Group, where SEBI chief’s husband, Dhaval Buch, happens to be an advisor.

So, what’s a REIT?

A REIT, or Real Estate Investment Trust, is like a mutual fund for real estate. Once listed on the stock exchange, REITs let you invest in physical properties instead of stocks or bonds. The money you invest goes into buying and managing income-generating real estate, like rental buildings or shopping malls. The income from these properties is then distributed to investors.

To qualify as a REIT, at least 80% of its assets must be completed, income-producing properties. SEBI requires REITs to pay out at least 90% of their earnings to investors, providing a steady income. They’re a safer alternative to investing in properties under construction and offer regular returns from rents and property sales.

In India, REITs are still a new asset class, but globally, they’re a big deal. SEBI approved the idea of REITs in India over a decade ago, but the first one didn’t launch until 2019—when Madhabi Puri Buch was a whole-time SEBI member. Notably, that first REIT was backed by Blackstone, though Dhaval Buch, her husband, joined Blackstone as an adviser later that year in July.

In fact, Blackstone was either a sponsor or an investor in 3 of the 4 REITs in India making it one of the largest players in the Indian REIT landscape.

Now, Hindenburg has raised questions over Buch advocating REITs and making favourable regulatory changes, without disclosing the beneficiary of these regulations: the fund her husband advises, Blackstone.

It also raised question over Dhaval's appointment in a senior advisory role at Blackstone without any prior experience in both real estate and capital markets.

Buch, in turn, has clarified that Blackstone was on the ‘recusal list’ maintained by the market regulator, which implies she was not involved in decisions impacting Blackstone.

In a joint statement with her husband, she said that the regulatory decisions made by Sebi on REITs were approved by the board and not by the chairperson alone and followed the consultation process.

The joint statement also clarified that Dhaval has never been associated with the real estate side of Blackstone and that his appointment at Blackstone Private Equity pre-dates Madhabi’s appointment as Sebi chairperson.

They also noted, that during the last two years, Sebi has issued more that 300 circulars for the broader benefit of the entire market ecosystem and to insinuate that changes were brought to only benefit REITs is malicious and motivated
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