Sebi mulls YieldCo listing norms

Highlights

To help generate low-cost funds for renewable energy ventures, capital markets regulator Sebi is considering allowing listing of a new type of entities named \'YieldCos\' that have become very popular in the US. The proposed norms are likely to be discussed by Sebi\'s board soon, sources said.

New Delhi: To help generate low-cost funds for renewable energy ventures, capital markets regulator Sebi is considering allowing listing of a new type of entities named 'YieldCos' that have become very popular in the US. The proposed norms are likely to be discussed by Sebi's board soon, sources said.

The regulator may first issue draft regulations, on which comments would be sought from all stakeholders before deciding the final norms. The proposed new regime would also require other regulatory changes, including by RBI and the Tax Department, sources added.

This would be on the lines of REITs (Real Estate Investment Trust) and InViTs (Infrastructure Investment Trust). Bond and other securities based on renewable energy are also under Sebi's consideration.

A 'YieldCo' is a publicly listed company that is formed to own assets that generate a predictable cash flow, primarily through long-term contracts. In this model, the cost of capital is lowered by separation of volatile assets like development, research and construction.

The model, which has already been gaining ground in the US and some other markets, is used in the renewable energy sector to protect the investors against regulatory changes. Under this model, the investors get the annual returns like a dividend and the capital remains invested for the long term.

Besides, there are tax incentives to make this model attractive. In the past couple of years, billions of dollars have been raised by American and European companies through IPOs of YieldCos, which are first spun off from their main business and then get listed separately. According to a USIBC report, there may be opportunities to explore the YieldCo dividend model specifically for Indian smart cities.

What is 'YieldCo'?

A yieldCo is a dividend growth-oriented public company, promoted by a parent company that bundles renewable and/or conventional long-term contracted operating assets in order to generate predictable cash flows. They are commonly used in the energy industry, particularly in renewable energy to protect investors against regulatory changes.

Yieldcos give investors a chance to participate in renewable energy without many of the risks associated with it. They are expected to pay a major portion of their earnings in dividends, which may be a valuable source of funding for parent companies which own a sizeable stake.

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