Reits, InvITs may tap overseas investors via depository receipts

The Securities and Exchange Board of India (Sebi) has proposed allowing Real Estate Investment Trusts (Reits) and Infrastructure Investment Trusts (InvITs) to raise funds from foreign investors through depository receipts, widening access to global capital for India's investment market.

Depository receipts are instruments issued by a foreign depository that represent ownership of securities held in another country. In this case, units of Indian Reits and InvITs would remain backed by domestic assets, while foreign investors would be able to trade corresponding receipts in international markets and in foreign currency.

Although foreign investors are already permitted to invest in Reits and InvITs under the country's foreign investment rules, Sebi's regulations governing these investment vehicles do not include specific provisions for issuing depository receipts for their units, creating a regulatory gap.

In a consultation paper issued on Tuesday, the market regulator said that the proposed framework seeks to address this by introducing specific provisions in the Reit and InvIT regulations.

Sebi proposed that depository receipts may be issued against units of Reits and publicly offered InvITs, subject to compliance with regulatory requirements and future guidelines issued by the regulator.

The proposal is open for public comments until 25 August.

Widening access

The move could make Indian Reits and InvITs more accessible to overseas investors by allowing them to participate through international exchanges without directly purchasing units on Indian stock exchanges. Sebi said this could attract additional foreign capital into these vehicles.

However, the proposal excludes privately listed InvITs. These InvITs typically have large investment ticket sizes, with trading lots of ₹25 lakh, and are restricted largely to institutional investors and corporates. Allowing depository receipts for such units could make it difficult to maintain existing investor-eligibility restrictions in overseas markets, it said.

The market regulator also said that the detailed operational framework for issuing depository receipts against Reit and InvIT units will be issued separately through a circular. The framework is expected to draw from existing rules governing depository receipt issuance by Indian companies while making changes suited to the structure of investment trusts.

Reits have garnered funds worth ₹6,005 crore in the current fiscal year until June, while InvITs have mobilized ₹3,826.78 crore.