China Securities Regulatory Commission And National Development And Reform Commission Re Discuss Trillion Reits Market

The blueprint of China's public REITs is slowly unfolding.

On July 23, at the 2021 annual meeting of China REITs forum, the CSRC and the NDRC discussed the trillion REITs market again. Li Chao, vice chairman of China Securities Regulatory Commission, pointed out that to promote the construction of REITs market, we should unswervingly adhere to the direction of marketization and legalization, fully respect market laws, and break the inertia thinking of examination and approval.

Han Zhifeng, deputy director of the investment department of the national development and Reform Commission, said that from the perspective of the development and Reform Commission, in the future, it will focus on accelerating the work process under the premise of ensuring the quality of the project, effectively solving key and difficult problems, giving full play to the role of the local development and Reform Commission, doing a good job in the follow-up of issued projects and comprehensively using various means to support the pilot promotion.

Prior to that, the first batch of 9 infrastructure public offering REITs were listed, which were sought after by the market, and closed up collectively on the first day. In this regard, Li Chao, vice chairman of the CSRC, said that the first batch of REITs pilot projects met the expectations, and the top-level design should be further strengthened in the next step.

The first batch of public REITs listed "full moon"

On June 21, the first batch of public REITs funds went public for more than a month.

On the first day of listing, 9 infrastructure REITs realized premium trading. Specifically, Shekou Industrial Park and Shougang green energy increased significantly, reaching 14.72% and 9.95% respectively. The REIT of Zhangjiang in Hua'an also reached 5.89%. The REIT of Guanghe expressway of Ping'an Guangzhou traffic investment Co., Ltd. increased by less than 1%, only 0.68%. It is worth mentioning that the lowest price of REIT of Soochow Suyuan Industrial Park was 3.876 yuan / share, which was lower than its issue price of 3.88 yuan / share.

At the same time, the transactions of the first batch of public REITs funds listed were active, with 8 funds accounting for more than 10% of the circulation volume. Shekou Industrial Park was the most active one, accounting for 33% of the total turnover, followed by Shougang green energy and Fuguo water REIT.

Although the market sentiment was hot on the first day of listing, in the following time, the overall performance of public REITs was stable.

On the day after listing, the public REITs fund began to break out in the secondary market. Among the nine products, only Fuguo's first water REITs rose slightly, while Soochow Suyuan industrial REITs closed flat, and the other seven REITs closed down.

As of July 23, there were two public REITs funds with the secondary market price lower than the issue price, namely Guangzhou Guanghe REIT and Yantian Port REIT.

Wang Jiatong, deputy general manager of Beijing tide Capital Co., Ltd., believes that the underlying assets corresponding to the first batch of public REITs projects, whether in terms of regional location, industry attributes, or operational maturity, are high-quality assets recognized by the market in the domestic core region. Because there is no bottom raiser in the structure of public offering REITs and only relies on asset credit, even if the price of high-quality assets is too high in the issuing process, the transaction price will fall below the issue price after the secondary market listing.

Pilot expansion of public REITs

According to the latest data of the national development and Reform Commission, the scale of the first nine projects to be sold is 31.4 billion yuan. After deducting the debt repayment, tax payment and share repurchase according to the rules, the net recovered funds for new investment are about 14.9 billion yuan, which can drive the total investment of new projects to more than 170 billion yuan.

On the basis of summing up the previous pilot experience, the national development and Reform Commission (NDRC) recently issued the notice on further improving the pilot work of real estate investment trust funds (REITs) in infrastructure field (hereinafter referred to as "no.958 document"), which expanded the scope of public REITs from the pilot area, asset range and other aspects, and put forward further requirements.

Hua'an Fund believes that "958 document" mainly affects four aspects. First, regional expansion, the pilot areas of infrastructure public REITs projects have been expanded to the whole country; Second, new energy infrastructure, affordable rental housing, water conservancy facilities, natural and cultural heritage, national AAAAA tourist attractions and other pilot projects; Thirdly, it further improves the requirements of initial public offering scale, and quantifies the raising ability of original equity holders, and encourages sponsors with rich asset reserves to issue public REITs with large amount of high-quality assets; Fourth, the proportion of net recovered funds used in new projects should be increased to 90%, and the calculation caliber should be "the recovered funds after deducting the funds used to repay relevant debts, pay taxes and participate in strategic allotment according to rules".

CITIC Securities research report pointed out that the expansion of infrastructure REITs and the inclusion of low-level assets such as affordable rental housing will not only enrich the underlying assets of infrastructure REITs and enhance the attractiveness of REITs, but also help enterprises revitalize their stock assets and open up the situation of long-term rent, parking lot and other fields. In particular, the poor operation of centralized long-term apartments in the past few years has led to the lack of competitive brands in this field. Once the path of asset securitization is established, the enterprise may grow rapidly by virtue of its operation ability.

System construction will be strengthened in the future

Market participants expect that the development space of China's public REITs market is broad.

According to the Research Report of Guanghua School of management of Peking University, it is conservatively estimated that the market size of China's publicly raised REITs will reach 4 trillion to 12 trillion yuan. Considering that China's urbanization population, total real estate and fixed asset investment significantly exceed that of the United States, the scale of China's REITs market will be far larger than that of the United States after it enters the mature stage.

At the 2021 annual meeting of China REITs forum held on July 23, Li Chao, vice chairman of China Securities Regulatory Commission, pointed out that in general, public REITs is still a new thing in China, and no institutional and institutional arrangements have yet been formed. In the future, we should form a sound system and rules to promote long-term capital to participate in investment.

Li Chao further pointed out that to promote the construction of REITs market, we should unswervingly adhere to the direction of marketization and legalization, fully respect market laws, break the inertia thinking of examination and approval, reduce the color of administrative control and project investment management, and strive to build an open, transparent, continuous and stable system with clear expectations. The audit work should follow the concept of registration system, and the project recommendation work should focus on the compliance with the major national strategies, macro-control policies, industrial policies, fixed asset investment management regulations, etc., so as to avoid the substantial multi-party audit to give the market entities and investors a stable expectation and prevent the market distortion.

Han Zhifeng, deputy director of the investment department of the national development and Reform Commission, said that the introduction of supporting policies such as financial supervision of REITs products, tax payment and state-owned assets transfer that the market pays close attention to is indeed conducive to the long-term development of infrastructure REITs. However, the introduction of policies must be a gradual and step-by-step process. The speed of the introduction is also related to the development of the infrastructure REITs market itself, Because all organizations need to be patient with the introduction of supporting policies.

At the same time, Han Zhifeng stressed that infrastructure REITs underlying assets are mature and stable infrastructure projects, the main source of income is relatively stable dividends, not suitable for short-term speculation, suitable for patient long-term capital participation.

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