India’s markets regulator has put in place a framework that will allow overseas investors to buy into real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) through selected foreign exchanges. The Securities and Exchange Board of India issued the rules on Monday.
The aim is to bring more foreign money into these two sectors. Sebi first floated the proposal in August, and its board cleared the framework in September.
What are depositary receipts?
A depositary receipt is an instrument denominated in a foreign currency. A foreign institution issues it against securities that are held with a custodian in India. Because the receipts can be traded on overseas markets, investors abroad get exposure to Indian securities without buying them directly on a domestic exchange.
Key conditions in the framework
Sebi has set out several requirements for trusts that want to use this route.
A REIT or InvIT that plans to list in India and issue depositary receipts at the same time will need approval from both the Indian exchange and the international exchange involved.
Any fresh issue of depositary receipts must be backed by at least 75% of unitholders.
On pricing, the units issued for depositary receipts cannot be priced below the price offered to Indian investors in a similar offering. This is meant to ensure that foreign buyers do not get a cheaper entry than domestic ones.
Separate rule for private InvITs
The framework also lays down a narrower condition for InvITs that are placed privately. Where such a trust issues fresh depositary receipts on its units, only foreign institutional investors and corporate bodies can subscribe to them.
Existing foreign access
Foreign money is not entirely new to this space. REITs and InvITs that are already listed in India can accept foreign investment, subject to the rules set by the government and the central bank. The new framework adds a second channel, through overseas-listed depositary receipts, on top of that existing route.
REITs and InvITs pool money from investors to own and operate income-generating assets. REITs typically hold real estate, while InvITs hold infrastructure projects. Both are listed on exchanges, and investors hold them as units.
By letting these units be represented by receipts that trade abroad, the regulator hopes to widen the investor base and make it easier for global funds to participate in India’s property and infrastructure assets.
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