Sebi allows REITs and InvITs to issue depository receipts for foreign capital
India's markets regulator Sebi has authorised Real Estate Investment Trusts and Infrastructure Investment Trusts to issue Depository Receipts, a move aimed at attracting foreign investment. The DRs will be listed on exchanges at the International Financial Services Centre and must comply with unitho
India's Securities and Exchange Board of India (Sebi) on Monday allowed Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) to issue Depository Receipts (DRs), a move aimed at drawing more foreign capital into these investment vehicles. The Depository Receipts are foreign currency-denominated instruments issued by a foreign depository in a permissible jurisdiction against securities deposited with a domestic custodian in India.
Under the framework set out in two separate Sebi circulars, REITs and InvITs can issue fresh units or facilitate the transfer of existing units held by unitholders for the purpose of issuing DRs. The instruments will be listed on specified international exchanges at India's International Financial Services Centre (IFSC) — the India International Exchange (India INX) and NSE International Exchange.
The regulator had first proposed the framework in August and its board approved it in September. Sebi has now issued detailed eligibility criteria, issuance procedures, pricing norms and compliance requirements for such offerings. The framework takes effect immediately.
Any fresh issue of DRs requires prior approval of unitholders, with at least 75 per cent of votes cast in favour. This approval requirement does not apply to REITs and InvITs undertaking an initial domestic offer and listing alongside a simultaneous DR issue on an international exchange. A fresh approval is also not needed for subsequent DR offerings within an overall limit already approved by unitholders.
DR holders, including their beneficial owners, cannot be residents of India, and the responsibility for ensuring compliance rests with them. For pricing, Sebi specified that in cases of simultaneous listing of units in India and DRs on an international exchange, the price of units issued or transferred for the DRs cannot be lower than the price applicable to the corresponding domestic offering, preferential allotment or institutional placement.
The manager of a REIT and the investment manager of an InvIT must file the initial offer document through a merchant banker with Sebi and recognised stock exchanges. Sebi will forward its comments within seven working days of receiving the document, while stock exchanges will decide on in-principle approval within 15 working days. Disclosures made by the trusts on international exchanges must be filed with recognised stock exchanges in India within 24 hours.
Voting rights attached to the underlying units will be exercised by DR holders through the foreign depository and only on the basis of voting instructions received from the DR holders. Domestic custodians must maintain records of DR issuance and cancellation transactions and report them to Indian depositories, and the foreign depository is not permitted to issue DRs until the domestic custodian confirms receipt of the underlying units.
