The Securities and Exchange Board of India (SEBI) has unveiled a significant proposal aimed at enhancing foreign investment in India's crucial real estate and infrastructure sectors. In a consultation paper released on Tuesday, the market regulator outlined a framework allowing Real Estate Investment Trusts (REITs) and publicly listed Infrastructure Investment Trusts (InvITs) to issue Depository Receipts (DRs).
This strategic move is designed to broaden overseas investment avenues and attract a greater influx of foreign capital into these vital segments of the Indian economy. By introducing a DR framework, SEBI seeks to create an additional, accessible investment option for international investors.
How the Depository Receipt Framework Will Work
Under the proposed regulatory framework, REITs and publicly listed InvITs would be empowered to issue foreign currency-denominated Depository Receipts. These DRs would be issued in permissible overseas jurisdictions, making them accessible to a wider pool of international investors.
Crucially, these Depository Receipts would be backed by the underlying units of the REITs or InvITs. These underlying units would be deposited with a domestic custodian located in India, ensuring regulatory oversight and security for the investments.
Defining Depository Receipts and Permissible Securities
The SEBI order references the Depository Receipts Scheme, 2014, which defines a "depository receipt" as a "foreign currency denominated instrument... issued by a foreign depository... on the back of permissible securities" deposited with a domestic custodian. This existing definition provides a clear legal basis for the proposed expansion.
Furthermore, the 2014 scheme clarifies that "permissible securities" include those under the Securities Contracts (Regulation) Act, 1956, as well as similar dematerialized instruments issued by private companies, provided they can be acquired by non-residents under the Foreign Exchange Management Act (FEMA), 1999. This ensures a comprehensive scope for the new DRs.
"According to SEBI, introducing a DR framework for REITs and InvITs would create an additional investment option for foreign investors," the consultation paper highlighted, underscoring the regulator's intent to diversify and expand capital sources for India's growing infrastructure and real estate needs.
The proposal marks a proactive step by SEBI to align India's investment ecosystem with global best practices, making it more attractive for international capital seeking opportunities in the country's high-growth sectors.