The Securities and Exchange Board of India (SEBI) has allowed real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) to issue depositary receipts (DRs) backed by their units and list them on exchanges at GIFT City, opening another route to attract foreign investment.
In two circulars issued on Monday, the market regulator laid down the conditions for such issuances. The permitted platforms are India International Exchange (India INX) and NSE International Exchange, both located in the International Financial Services Centre (IFSC) at GIFT City.
Depositary receipts are foreign currency-denominated instruments issued by an overseas depository against underlying units held with a domestic custodian. They allow investors to trade exposure to these units on international exchanges.
Unitholder approval and participation
Under the framework, a fresh issue of DRs will generally require prior approval from unitholders, with at least 75% of the votes cast in favour of the proposal.
This approval will not be necessary when a REIT or InvIT makes an initial offer of units alongside a DR issue for listing overseas. Subsequent DR offerings within the overall limit already approved by unitholders will also be exempt from seeking fresh approval.
Where existing unitholders transfer their units for a DR issue and listing, the investment trust must give all existing unitholders an opportunity to tender their units and participate in the offer.
Investor and eligibility conditions
The framework bars Indian residents from holding DRs, including through beneficial ownership. Responsibility for ensuring compliance with this condition will lie with the DR holders and their beneficial owners.
SEBI has also set eligibility requirements for the trusts and the parties involved in the issuance. REITs and InvITs, their directors, promoters and partners, as well as unitholders transferring units, must not be debarred by SEBI from accessing the capital market. They must also not be wilful defaulters or fugitive economic offenders.
Additionally, these parties and their directors, promoters or partners must not be associated as promoters or directors with another company or investment trust that has been barred from accessing the capital market.
The restrictions will not apply where an earlier SEBI debarment has expired by the date of filing the relevant offer document.
Merchant banker oversight and approval timeline
The manager of a REIT and the investment manager of an InvIT will have to appoint a merchant banker to oversee compliance with the DR issuance requirements. The merchant banker will also submit a compliance report to be placed before the board of the respective manager.
For a fresh issue, the initial offer document must be submitted to SEBI and the stock exchanges through the merchant banker.
SEBI will endeavour to provide its comments within seven working days of receiving the document. The stock exchanges will then consider the regulator’s comments and decide on in-principle approval within 15 working days of receiving the application and the required documents.