SEBI proposes Depository Receipts for REITs, listed InvITs to widen foreign investor access

The Securities and Exchange Board of India (SEBI) has proposed a regulatory framework to allow Real Estate Investment Trusts (REITs) and publicly listed Infrastructure Investment Trusts (InvITs) to issue Depository Receipts (DRs), a move aimed at broadening overseas investment avenues and attracting more foreign capital into India's real estate and infrastructure sectors.

In a consultation paper released on Tuesday, the regulator said the proposal would enable REITs and publicly listed InvITs to issue foreign currency-denominated Depository Receipts in permissible overseas jurisdictions. These DRs would be backed by the underlying REIT or InvIT units deposited with a domestic custodian in India.

A new route for overseas investors

According to SEBI, introducing a DR framework for REITs and InvITs would create an additional investment option for foreign investors by allowing them to trade these instruments in foreign currency on recognised international exchanges. The regulator said the proposal could also help Indian REITs and InvITs tap a wider pool of global capital and enhance their international visibility.

Depository Receipts are foreign currency-denominated instruments issued by a foreign depository in a permissible jurisdiction against eligible Indian securities held with a domestic custodian. Since investors trade DRs overseas instead of the underlying units in India, the instrument offers a familiar route for international investors seeking exposure to Indian assets.

According to the Sebi order, the Depository Receipts Scheme, 2014, states that a "depository receipt" means "a foreign currency denominated instrument... issued by a foreign depository... on the back of permissible securities" deposited with a domestic custodian. The order further notes that "permissible securities" include securities under the Securities Contracts (Regulation) Act, 1956, as well as similar dematerialised instruments issued by private companies that may be acquired by non-residents under the Foreign Exchange Management Act (FEMA), 1999.

Regulatory gap to be addressed

SEBI noted that the Depository Receipts Scheme, 2014 and the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, already permit issuance of Depository Receipts against eligible securities, including units of REITs and InvITs. However, the REIT and InvIT regulations currently do not contain enabling provisions for such issuances, despite the broader legal framework allowing them.

To bridge this gap, the regulator has proposed inserting new provisions in the REIT Regulations and InvIT Regulations that would explicitly permit issuance of Depository Receipts, subject to compliance with SEBI's regulations and operational requirements.

Private InvITs kept out

The proposed framework will apply only to REITs and publicly listed InvITs. SEBI has excluded privately listed InvITs because they have a minimum trading lot of ₹25 lakh and can issue units only to institutional investors and body corporates. Such restrictions cannot be effectively enforced once DRs are issued and traded in overseas markets.

SEBI said the detailed operational framework for issuance of DRs by REITs and publicly listed InvITs will be issued through a separate circular. The draft framework has been prepared by adapting the existing framework governing Depository Receipts issued by Indian listed companies, with modifications to suit REITs and InvITs.