1 week ago
Sebi Proposes Depository Receipts Framework for India’s REITs
India’s markets regulator, Sebi, wants to make it possible to create overseas depository receipts using units of some REITs and InvITs.
These receipts could give foreign investors another way to invest in Indian real estate and infrastructure trusts.
The proposal mostly creates rules for an investment route that is already permitted in principle.
Privately listed InvITs would not be included because their special investor and lot-size rules may not work with freely traded receipts.
The regulator also wants to make it easier for trusts to invest in projects that are still being built.
The author says trusts should not always be forced to take control of those projects.
Instead, contracts, voting rights, and information requirements could protect investors.
Other proposals would change how unitholder approvals and dissenting investors are treated.
The final rules will need to balance easier investment with investor protection.
Sebi issued consultation papers proposing overseas depository receipts against REIT and publicly listed InvIT units.
The proposals aim to fill a regulatory and operational gap without expanding existing foreign-investment permissions.
The framework excludes privately listed InvITs because overseas trading could conflict with their investor and lot-size restrictions.
Industry-focused reforms would allow minority investments in third-party projects under construction, subject to governance safeguards.
The proposals also address approval thresholds, dissenting unitholders, exit offers, and minimum public unitholding requirements.
- Who
- The Securities and Exchange Board of India, REITs, InvITs, and their investors.
- What
- Sebi proposed rules for depository receipts linked to REIT and publicly listed InvIT units, along with five operational reforms.
- Where
- India, with the proposed depository receipts intended for overseas listing and trading.
- When
- The consultation papers were issued on August 4 and August 6; REITs and InvITs have been part of India’s listed market since 2019 and 2017, respectively.
- Why
- To fill a regulatory and operational gap, potentially widen foreign-capital access, enable earlier-stage project investment, and reduce operational frictions.
Expansion and Flexibility
Calibration and Investor Protection
Depository receipts
Expansion and Flexibility
Extending depository receipts to REITs and publicly listed InvITs could widen foreign-capital access and provide another route for overseas investors.
Calibration and Investor Protection
Foreign investors already participate directly through the foreign portfolio investment route, and India’s equity depository receipt market has seen negligible activity since 2014, raising questions about demand.
Privately listed InvITs
Expansion and Flexibility
Privately listed InvITs should potentially be included, with eligibility restricted to qualified institutional buyers and monitored by the foreign depository.
Calibration and Investor Protection
They are excluded because freely traded overseas receipts may not preserve the lot-size and investor restrictions applicable to privately listed InvITs.
Minority project investments
Expansion and Flexibility
REITs and InvITs should be allowed to remain minority investors in projects under construction, using veto rights, voting thresholds, and reporting obligations as safeguards.
Calibration and Investor Protection
Requiring a binding agreement to transition to prescribed ownership and control may provide a clearer path to regulatory compliance and oversight.
Approval and voting rules
Expansion and Flexibility
Approval thresholds should be calibrated to an issue’s size, dilution, and control implications rather than applying a uniform 75% threshold.
Calibration and Investor Protection
Higher approval requirements and monitoring of acquisition thresholds can help protect unitholders, although the article questions whether global clearing systems can reliably monitor those limits.
Key facts
- Regulator
- Securities and Exchange Board of India (Sebi)
- First consultation paper
- Dated August 4; proposes depository receipts against units of REITs and publicly listed InvITs.
- Second consultation paper
- Dated August 6; proposes five ease-of-doing-business measures for REITs and InvITs.
- Proposed approval threshold
- A uniform 75% approval threshold for every fresh depository receipt issue beyond the initial listing.
- Excluded instrument
- Privately listed InvITs are excluded from the proposed depository receipt framework.
- Investment reform
- REITs and InvITs could make non-controlling minority investments in third-party projects under construction.
- Listed-market history
- InvITs have been part of India’s listed market since 2017, while REITs have been part of it since 2019.
Sources
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