Foreign Investment Boom: SEBI Proposes Depository Receipts for REIT and InvIT Units to Unlock Global Capital Flows

Foreign Investment Boom: SEBI Proposes Depository Receipts for REIT and InvIT Units to Unlock Global Capital Flows​

Regulatory Shift Targets International Listing of Real Estate Assets​

The Securities and Exchange Board of India (SEBI) has introduced a significant proposal aimed at broadening investment opportunities in real estate and infrastructure. The regulator is considering allowing the issuance of Depository Receipts (DRs) against units of Real Estate Investment Trusts (REITs) and publicly listed Infrastructure Investment Trusts (InvITs).

This move intends to attract substantial foreign capital by enabling these assets to be traded internationally. DRs are financial instruments that allow non-resident investors to trade Indian securities in their local foreign currency on permitted global exchanges.

Streamlining Global Access to REIT and InvIT Units​

Under the proposed framework, REITs and publicly listed InvITs would be empowered to issue DRs within specified overseas jurisdictions. This will provide a critical layer of international exposure for foreign investors.

Sebi stated that DRs are beneficial because they allow trading in foreign currency on permitted international exchanges. The measure is set to boost foreign capital inflow into these sectorial trusts, according to the regulator.

Currently, units of REITs and InvITs are denominated entirely in Indian rupees and are listed on recognized domestic stock exchanges. While such trusts can invite subscriptions from foreign investors subject to RBI guidelines, a corresponding framework for international trading was absent.

Addressing Regulatory Gaps for Foreign Investors​

While the existing Depository Receipts Scheme 2014 and the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, permit non-resident individuals to invest in REIT and InvIT units, SEBI noted a regulatory gap existed. Specifically, there was no enabling provision within the current REIT and InvIT regulations for issuing DRs against these units.

To address this deficiency, SEBI plans to insert specific enabling provisions into the relevant REIT Regulations and InvIT Regulations. This will permit the issuance of DRs against units of REITs and publicly offered InvITs, provided all regulatory conditions are met.

Scope and Caveats of the Proposed DR Framework​

The proposed framework clearly delineates between different types of trusts. The proposal extends to both real estate and infrastructure assets that are publicly listed or publicly offered.

However, SEBI has specifically noted that privately listed InvITs will remain outside the ambit of this proposed DR framework. This distinction ensures focused regulatory action on investment vehicles open to a wide investor base.

The Securities and Exchange Board of India (SEBI) has sought public comments on these comprehensive proposals. Interested parties have been invited to submit their views on the matter by August 25.