SEBI Opens Depository Receipt Route For REITs And InvITs to Attract Foreign Funds

NEW DELHI: India’s market regulator has opened a new route for foreign investors to invest in real estate and infrastructure trusts. SEBI has allowed depository receipts backed by REIT and InvIT units to be issued and listed on specified exchanges in India’s International Financial Services Centre. The framework took effect immediately.

The rules were issued through two circulars dated November 2. They allow trusts to issue new units or use units transferred by existing holders to support the receipts. The permitted exchanges are India International Exchange and NSE International Exchange at GIFT City.

Fresh issues will generally need approval from unitholders, with at least 75% of votes cast supporting the proposal. SEBI has also set rules for pricing, disclosures, voting and custody. These checks aim to widen access to foreign capital while protecting existing investors.

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New Route Lets Foreign Investors Access Trust Units

A depository receipt, or DR, is a foreign-currency instrument backed by securities held with a custodian. Under the new framework, a foreign depository issues the receipt against REIT or InvIT units deposited with a SEBI-registered domestic custodian.

The arrangement gives overseas investors another way to gain exposure to Indian trusts without directly holding the underlying units in the domestic market. It adds to existing foreign investment routes rather than replacing them.

REITs are real estate investment trusts. InvITs are infrastructure investment trusts. The new framework covers both, though some conditions differ according to the type of trust and offering.

SEBI has limited the route to specified exchanges within India’s IFSC. The announcement should not be read as permission to list these receipts on any overseas stock exchange. The two named venues are India INX and NSE International Exchange.sebi.gov+1

The main rules are:

The distinction between new and existing units matters. A fresh issue creates additional units. A transfer uses units already held by investors. SEBI has provided a route for both, with separate safeguards where existing holders tender their units.

Unitholder Approval and Pricing Rules Protect Existing Investors

A fresh DR issue will normally require prior approval through a unitholder vote. The 75% threshold applies to votes cast on the resolution. It is not a requirement that 75% of all unitholders must take part or support the issue.

There are two main exceptions:

• A trust may make an initial domestic offer and listing alongside a simultaneous DR issue without this separate prior approval.
• Later DR offerings within an overall limit already approved by unitholders do not need a fresh vote.

Where existing units are transferred for a DR listing, the trust must give all existing unitholders an opportunity to tender their units. This prevents the process from being offered only to selected holders.

The manager must also ensure that minimum public unitholding rules are met. Units deposited with the domestic custodian for the DR issue will count as non-public holdings for this calculation. That makes the size and structure of an offering important for compliance.

Pricing is another key safeguard. Units issued or transferred for the receipts cannot be priced below the price applicable to the corresponding domestic offering, preferential allotment or institutional placement. The principle applies to simultaneous offerings and separate DR transactions.

The framework also sets eligibility checks. Relevant trusts and associated parties must meet conditions relating to market bans, wilful default and fugitive economic offender status. An expired debarment does not continue to block eligibility if the ban has ended by the relevant filing date.

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Filing, Voting and Reporting Duties Remain with Managers

The REIT manager or InvIT investment manager must file the initial offer document through a merchant banker with SEBI and the recognised stock exchanges. SEBI will forward comments, if any, within seven working days of receiving the document. Exchanges will decide on in-principle approval within 15 working days after receiving the application and required papers. These are process timelines, not a guarantee of approval.

A merchant banker must oversee compliance and submit a report. That report will go before the board of the relevant manager. The structure places clear duties on those arranging and managing the offering.

The rules also seek to keep domestic investors informed. Disclosures made on the international exchange must be filed with recognised Indian exchanges within 24 hours. This reduces the risk of one market receiving material information well before another.

Voting rights attached to the underlying units will be exercised through the foreign depository, based only on instructions received from DR holders. Domestic custodians must record DR issues and cancellations and report them to Indian depositories.

The custody requirement is equally clear: the foreign depository cannot issue the receipts until the domestic custodian confirms that it has received the backing units. The new route therefore combines wider foreign access with controls over approval, price, information and the securities supporting each receipt.

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