SEBI on Monday allowed REITs and InvITs to raise foreign funds through depository receipts. This move gives these trusts a new way to access overseas capital. Investors can now buy these instruments at the IFSC in GIFT City. Additionally, SEBI reduced the cooling-off period for certain InvIT transactions to eight weeks.
The Securities and Exchange Board of India (SEBI) on Monday allowed Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) to raise funds from foreign investors through depository receipts (DRs), providing them with an additional route to access overseas capital.
Under two separate circulars, SEBI has specified the framework for issuing DRs against units of REITs and InvITs and listing them on exchanges at the International Financial Services Centre (IFSC) in GIFT City, which are India International Exchange (India INX) and NSE International Exchange.
What are DRs
DRs are foreign currency-denominated instruments issued by a foreign depository against underlying securities held with a domestic custodian. The framework will allow foreign investors, including non-resident Indians (NRIs), to invest in Indian REITs and InvITs without directly purchasing their units on domestic exchanges.
Any fresh issue of DRs will require prior approval from unitholders, with at least 75 per cent of the votes cast in favour of the resolution. However, this approval will not be required for subsequent offerings within the overall limit already approved by unitholders.
Where existing unitholders transfer their units for issuing DRs, the REIT or InvIT must provide all existing unitholders an opportunity to participate in the offering. DR holders and their beneficial owners cannot be persons resident in India.
Eligibility conditions
SEBI has also prescribed eligibility conditions for issuers and unitholders transferring units. They should not be debarred from accessing the capital markets, classified as wilful defaulters or identified as fugitive economic offenders.
Separately, SEBI has reduced the cooling-off period for offer-for-sale (OFS) transactions involving illiquid units of privately listed InvITs to eight weeks from 12 weeks earlier.
The cooling-off period applies to purchases and sales before and after an OFS. The existing framework prescribes a two-week period for the most liquid shares, four weeks for liquid shares and 12 weeks for illiquid shares.
SEBI said privately listed InvITs face liquidity constraints because of their high trading lot sizes, which limit participation largely to institutional investors, corporates and high-net-worth individuals.
The revised eight-week period will come into effect immediately, the regulator said.