Key takeaways
- SEBI has introduced separate frameworks allowing REITs and InvITs to issue depository receipts backed by their units.
- The receipts will be denominated in foreign currencies and listed on GIFT City’s India International Exchange and NSE International Exchange.
- The framework allows trusts to issue fresh units or use existing units transferred by unitholders.
- Fresh DR issues generally require approval from at least 75% of votes cast by unitholders.
- DR holders and their beneficial owners must be non-residents of India.
- Pricing safeguards prevent underlying units from being issued or transferred below the corresponding domestic transaction price.
- The change creates another route for Indian real estate and infrastructure trusts to access international capital.
What are REITs and InvITs?
Real Estate Investment Trusts and Infrastructure Investment Trusts are investment vehicles that allow investors to participate in income-generating property and infrastructure assets.
A REIT typically owns or invests in commercial real estate assets such as office buildings, shopping centres and other rental properties. It generates income primarily through rent and other property-related revenue.
An InvIT, on the other hand, invests in infrastructure assets such as roads, highways, transmission lines, power infrastructure and other operating projects. These assets can generate regular cash flows through tolls, tariffs and contractual payments.
Both structures allow investors to gain exposure to large assets without directly purchasing or managing them.
They also provide infrastructure and property developers with a mechanism to monetise operating assets and raise capital for future projects.
How will the new depository receipt framework work?
A depository receipt is a financial instrument issued by a foreign depository against underlying securities held with a domestic custodian.
Under SEBI’s framework, a REIT or InvIT can issue units that are deposited with an Indian custodian. A foreign depository then issues corresponding depository receipts, which can be traded on permitted international exchanges.
This structure allows eligible overseas investors to gain exposure to Indian REITs and InvITs through foreign currency-denominated instruments without directly purchasing the underlying units in the domestic market.
The framework permits two broad routes:
1. Fresh issuance of units
A REIT or InvIT can issue new units and use them as the underlying securities for depository receipts. This creates an additional fundraising route for the trust.
2. Transfer of existing units
Existing unitholders can transfer their units for the creation of depository receipts. In such cases, the trust must provide an opportunity to other existing unitholders to participate in the offering.
The two routes provide flexibility for trusts seeking new capital as well as investors looking to transfer existing holdings through the international structure.
Which exchanges can list these depository receipts?
SEBI has permitted the depository receipts to be listed on two international exchanges operating in GIFT City, Gujarat.
| Exchange | Location |
|---|---|
| India International Exchange (India INX) | GIFT City, Gujarat |
| NSE International Exchange (NSEIX) | GIFT City, Gujarat |
Both exchanges operate within India’s International Financial Services Centre (IFSC).
GIFT City has been developed as an international financial services hub, providing a regulatory and operating environment for financial institutions, exchanges, banks, insurers and investment businesses.
Allowing REITs and InvITs to list depository receipts through these exchanges could expand the range of investment products available to international market participants.
It also strengthens GIFT City’s role as a channel connecting overseas capital with Indian financial assets.
SEBI makes 75% unitholder approval mandatory
The regulator has introduced safeguards to ensure that existing investors have a say in decisions involving depository receipt issuance.
Any fresh issue of DRs generally requires prior approval from unitholders, with at least 75% of the total votes cast supporting the proposal.
However, SEBI has provided certain exceptions.
The approval requirement will not apply when a trust undertakes an initial public offering of units alongside a simultaneous depository receipt issuance and international listing.
Similarly, subsequent DR offerings within the overall issuance limit already approved by unitholders will not require a fresh approval each time.
Where existing unitholders transfer their units to facilitate a DR issuance, the trust must give all existing unitholders an opportunity to tender their units and participate.
These conditions are intended to protect existing investors while allowing trusts to access overseas funding.
Who can invest in the depository receipts?
The framework specifically restricts Indian residents from holding the depository receipts.
DR holders and their beneficial owners must be non-residents of India. Responsibility for ensuring compliance with this condition rests with the holders and their beneficial owners.
SEBI has also prescribed eligibility requirements for the trusts and participating parties.
The REIT or InvIT, its directors, promoters and partners, as well as unitholders transferring units, must meet the prescribed regulatory conditions. These include restrictions relating to entities debarred from accessing the capital market, wilful defaulters and fugitive economic offenders.
The framework also includes restrictions involving individuals associated with other entities that have been debarred from the securities market, subject to the specified exceptions.
These requirements are designed to maintain regulatory standards across the domestic and international parts of the issuance process.
Pricing rules and disclosure requirements
SEBI has introduced pricing safeguards to prevent the underlying units from being issued or transferred at a price lower than the corresponding domestic transaction.
For simultaneous domestic and international offerings, the price of units underlying DRs cannot be lower than the price applicable to Indian investors in the corresponding initial offer, preferential allotment or institutional placement.
For other issuances and transfers, the applicable domestic pricing requirements must also be followed.
The framework includes additional disclosure and monitoring requirements.
| Regulatory requirement | What it means |
|---|---|
| Pricing safeguards | DR-backed units cannot be priced below the corresponding domestic transaction price |
| Public disclosures | Disclosures made on international exchanges must also be filed with Indian exchanges within 24 hours |
| Custodian records | Domestic custodians must maintain records of DR issuance and cancellation |
| Depository reporting | Custodians must report relevant transactions to Indian depositories |
| Voting rights | DR holders can exercise applicable voting rights through the foreign depository based on their instructions |
| Public unitholding | Minimum public unitholding requirements must be maintained |
Units deposited with a depository for issuing DRs will be treated as non-public unitholding when calculating the minimum public unitholding requirement.
These provisions are intended to ensure that international trading does not weaken domestic disclosure standards or investor protections.
Merchant bankers will oversee the issuance process
SEBI has also assigned a compliance role to merchant bankers.
The manager of a REIT and the investment manager of an InvIT must appoint a merchant banker to oversee compliance with the DR issuance requirements.
The merchant banker will be responsible for reviewing the applicable documentation and submitting a compliance report. That report must be placed before the board of directors of the manager or investment manager.
For fresh issuances, the initial offer document must be filed with SEBI and the relevant stock exchanges through the merchant banker.
SEBI has indicated that it will endeavour to provide its comments within seven working days of receiving the offer document. The stock exchanges will consider the regulator’s comments and decide on in-principle approval within 15 working days of receiving the application and required documents.
This process establishes a defined regulatory pathway for trusts planning international DR offerings.
Why the move matters for India’s real estate and infrastructure sectors
The new framework provides REITs and InvITs with another way to reach international investors.
India requires substantial long-term capital to develop commercial real estate, roads, power networks, logistics facilities and other infrastructure assets.
Overseas investors, including international institutions and funds, represent a potential source of that capital.
Depository receipts can make access more convenient by allowing eligible investors to trade foreign currency-denominated instruments on international exchanges in GIFT City.
For REITs, the additional route could help attract capital for commercial property portfolios and future acquisitions.
For InvITs, it could broaden the investor base for operating infrastructure assets and potentially support future fundraising.
However, the new framework does not guarantee that trusts will immediately attract large overseas investments. Actual fundraising will depend on investor demand, asset quality, expected distributions, pricing and market conditions.
The Bigger Picture
SEBI’s decision adds another international fundraising channel to India’s capital-market infrastructure. By allowing REITs and InvITs to issue depository receipts through GIFT City exchanges, the regulator is making it possible for eligible overseas investors to access Indian property and infrastructure assets through foreign currency-denominated instruments. The framework also creates a formal structure for pricing, disclosure, custody and investor protection.
The longer-term impact will depend on how quickly trusts use the new route and whether international investors find the underlying assets attractive. The framework could support fundraising and improve access to global capital, but it does not remove the importance of asset performance, distribution yields, valuation and regulatory compliance.
Looking Ahead
The next step will be for individual REITs and InvITs to evaluate whether international depository receipt offerings suit their fundraising plans. Trusts considering fresh issues will need to secure the required unitholder approval, appoint merchant bankers and complete the prescribed regulatory process. Investors will also watch for the first offerings and the level of overseas participation.
For GIFT City, the framework expands the range of financial instruments available through its international exchanges. If trusts use the facility successfully, it could strengthen the connection between global investors and India’s real estate and infrastructure markets. The actual scale of the opportunity will become clearer as issuances begin.
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