SEBI is considering allowing REITs and InvITs to issue depository receipts for overseas trading. This move aims to attract foreign capital by allowing international investors to trade these Indian assets in foreign currency. Public comments on the proposed framework are open until August 25.
The Securities and Exchange Board of India (SEBI) has released a consultation paper proposing a framework to allow Real Estate Investment Trusts (REITs) and publicly listed Infrastructure Investment Trusts (InvITs) to issue Depository Receipts (DRs). If implemented, this change would enable these trusts to offer their units to foreign investors in foreign currency on international exchanges.
How Depository Receipts Work
Depository Receipts are financial instruments that act as a bridge between domestic and international markets. In this proposed setup, a domestic custodian would hold the underlying units of the REIT or InvIT in India. Based on these units, a foreign depository would issue receipts that can be traded on overseas stock exchanges. This structure is intended to simplify the process for international investors who may prefer to transact in their local currencies rather than navigating the Indian rupee market directly.
Impact on Market Access
Currently, REITs and InvITs are traded primarily on Indian stock exchanges in rupees. While foreign investors are already permitted to invest in these instruments under existing foreign investment rules, the lack of a specific enabling framework under SEBI’s REIT and InvIT regulations has limited their reach. By creating a direct channel for DRs, the regulator aims to improve liquidity and potentially increase the flow of global capital into India's growing real estate and infrastructure sectors.
It is important to note that this proposal specifically excludes privately listed InvITs, focusing only on those that are publicly traded. SEBI has pointed out that while these units already fall under the scope of the Depository Receipts Scheme 2014, the current regulatory gap prevents the practical issuance of such instruments.
What Investors Should Monitor
For investors currently holding units in listed REITs or InvITs, this proposal could lead to broader participation in these trusts. A wider investor base might influence liquidity levels in the secondary market over time. However, the actual benefit for these trusts will depend on the final regulatory guidelines, the cost of issuing these instruments, and the level of interest from foreign institutions.
The regulatory process is currently in the consultative stage. SEBI has invited stakeholders and the public to provide feedback on the proposed framework by August 25. The next critical step will be the release of final regulations, which will specify the operational requirements and the jurisdictions where these depository receipts can be listed.