SEBI Allows REITs and InvITs to Issue Depository Receipts

The Securities and Exchange Board of India (Sebi) has permitted Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) to issue Depository Receipts (DRs), in a move aimed at attracting more foreign capital into these investment vehicles.

The framework, which came into effect immediately, sets out eligibility conditions, issuance procedures, pricing norms and compliance requirements.

Depository Receipts to Be Listed on IFSC Exchanges

Depository Receipts are foreign currency-denominated instruments issued by a foreign depository against securities held with a domestic custodian in India.

Under Sebi’s framework, REITs and InvITs can issue fresh units or facilitate the transfer of existing units held by unitholders for DR issuance.

The instruments will be listed on specified international exchanges located in India’s International Financial Services Centre (IFSC): India International Exchange (India INX) and NSE International Exchange.

The proposal was introduced in August to attract foreign capital and received approval from Sebi’s board in September.

The regulator has now issued separate circulars for REITs and InvITs detailing the requirements.

Eligibility and Approval Requirements

Sebi has prescribed eligibility conditions for REITs, InvITs and their respective parties, including directors, promoters, partners and unitholders transferring units.

Entities must not be debarred from accessing the capital market, wilful defaulters or fugitive economic offenders.

Certain associations with entities debarred by Sebi can also make a person ineligible, subject to the regulator’s stated conditions.

DR holders and their beneficial owners must not be residents of India. The responsibility for ensuring compliance with this requirement rests with the DR holders and their beneficial owners.

Managers of REITs and investment managers of InvITs must file the initial offer document through a merchant banker with Sebi and recognised stock exchanges.

Sebi may provide comments within seven working days, while exchanges will decide on in-principle approval within 15 working days of receiving the application and required documents.

Unitholder Approval and Pricing Norms

A fresh DR issue will generally require prior approval from unitholders, with at least 75% of votes cast in favour.

Exceptions include a simultaneous domestic initial offer and DR issue, as well as subsequent offerings within the overall limit already approved by unitholders.

Where existing unitholders transfer units for a DR listing, the REIT or InvIT must provide all existing unitholders an opportunity to tender their units.

Managers must also ensure compliance with minimum public unitholding requirements.

Units deposited with a domestic custodian for DR issuance will be treated as non-public unitholding for this calculation.

For simultaneous domestic and international listings, the price of units issued or transferred for DRs cannot be lower than the price applicable to the corresponding domestic offering, preferential allotment or institutional placement.

The same pricing principle applies to separate DR issuance.

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Disclosure and Monitoring Framework

Managers must appoint a merchant banker to oversee compliance, with a report submitted to the board of the manager or investment manager.

Disclosures made on international exchanges must be filed with recognised Indian stock exchanges within 24 hours.

DR holders may exercise voting rights attached to underlying units through the foreign depository, based on their voting instructions.

Domestic custodians will maintain records of DR issuance and cancellation and report these transactions to Indian depositories.

A foreign depository cannot issue DRs until the domestic custodian confirms receipt of the underlying units.

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Key Takeaways

• Sebi has allowed REITs and InvITs to issue depository receipts to attract foreign capital.
• DRs will be listed on India INX and NSE International Exchange in the IFSC.
• Fresh issues generally require approval by at least 75% of votes cast by unitholders.
• The framework includes eligibility, pricing, disclosure and custodial monitoring requirements and is effective immediately.

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