SEBI Approves Depository Receipts for REITs and InvITs to Attract Foreign Capital
SEBI has approved changes allowing depository receipts against REIT and InvIT units, while easing voting rules and revising sponsor exits, research analyst compliance and bullion vault regulations.
- Depository Receipts will enable foreign investors to gain exposure to REITs and InvITs.
- REIT and InvIT voting thresholds will now be linked to votes actually cast.
- Vault managers will face higher net-worth and stronger security requirements.
The Securities and Exchange Board of India (SEBI) has approved a series of regulatory changes aimed at making REITs, InvITs and other market-related frameworks more flexible and efficient. The key decision allows Depository Receipts (DRs) to be issued against units of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), creating another route for overseas capital to enter these investment vehicles.
The decision was approved by the SEBI board on Thursday. Under the new framework, DRs will be foreign currency-denominated instruments issued by a foreign depository against securities held with a domestic custodian in India. SEBI said the move is intended to facilitate greater foreign investment in REITs and InvITs. The regulator has also changed voting rules, sponsor exit provisions and certain compliance requirements to address practical issues faced by market participants.
SEBI has revised the voting requirement for certain matters requiring a 75% approval threshold. Earlier, the requirement was calculated against 75% of all outstanding units, even when a significant number of unitholders did not participate in the vote.
Going forward, the threshold will be calculated based on 75% of the votes actually cast. According to SEBI, the change is intended to address difficulties caused by dispersed ownership and low participation among unitholders.
The regulator has also revised provisions concerning exit offers when there is a change in the sponsor structure. If one sponsor exits from a group of multiple sponsors, the exit offer may be made by the outgoing sponsor or its group entities, or by the continuing sponsor or its group entities.
SEBI has further clarified that dissenting unitholders will refer specifically to investors who vote against a resolution, rather than those who simply choose not to participate.
The amended framework also provides that all units tendered under an exit offer will have to be accepted. If the offer results in the public unitholding falling below the prescribed minimum level, the required public holding will have to be restored within one year.
These changes are aimed at providing greater clarity around sponsor exits while ensuring that public unitholding requirements continue to be met.
Separately, the SEBI board approved amendments to the Research Analysts Regulations. The changes relax the requirement for research analysts and research entities to retain recordings of communications with institutional investor clients.
SEBI said the amendment is intended to support ease of doing business and reduce the compliance burden associated with maintaining communication records.
SEBI has also approved changes to its Vault Managers Regulations, 2021. The revised framework will move away from an Electronic Gold Receipt (EGR)-specific approach and introduce a broader, product-neutral framework for bullion-related instruments specified by SEBI.
The expanded framework will cover bullion underlying products such as Gold and Silver Exchange Traded Funds (ETFs) and bullion derivatives, in addition to gold associated with EGRs.
The minimum net-worth requirement for vault managers will also increase from ₹50 crore to ₹75 crore.
Under the revised framework, vault managers will face strengthened requirements covering bullion storage, safekeeping, segregation, reconciliation, security, insurance, governance and risk management.
Security standards will also address risks including theft, burglary, fire, fraud, terrorism and cyberattacks. Vault managers will additionally be required to appoint a compliance officer.
SEBI said a consequential circular will be issued to operationalise the amended vault manager framework. The circular is expected to provide detailed requirements covering storage and safekeeping, quality standards, reconciliation, inspections, audits, insurance, security, infrastructure, risk management and grievance redressal.
For the real estate investment market, the introduction of DRs could provide REITs and InvITs with an additional mechanism to access international investors, while the revised voting and sponsor-exit rules are intended to make governance and ownership changes more workable.
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