China Securities Regulatory Commission Issues Guidelines On Public Offering Reits To Revitalize Infrastructure Assets

Public REITs set sail.

On August 7, the China Securities Regulatory Commission (CSRC) issued the guidelines on public offering of infrastructure securities investment funds (for Trial Implementation) (hereinafter referred to as the guidelines), which shall come into force on the date of promulgation.

In addition, it points out that, in terms of its, it is the guideline for China's Securities Regulatory Commission (CSRC) to increase the proportion of its capital stock and increase the efficiency of its in China's capital market.

According to the analysis of industry insiders, promoting the pilot of infrastructure REITs is of great significance for deepening the structural reform of the financial supply side, improving the ability of the capital market to serve the real economy, and enriching the investment and financing tools of the capital market.

The main contents of the guidelines include clarifying the product definition and operation mode; clarifying the selling mode of fund shares; compacting the main responsibility of institutions and strictly controlling the quality of infrastructure projects; standardizing the operation of fund investment, strengthening risk control and strengthening the investor protection mechanism; and clarifying the supervision and management responsibilities of the CSRC and relevant self regulatory organizations, and strengthening the restraint of violations.

As a matter of fact, the CSRC drafted the guidelines on public offering of infrastructure securities investment funds (Trial) (Draft for Soliciting Opinions) earlier, and solicited opinions from the public from April 30 to May 30, 2020. After one month's consultation, the guidelines were officially launched on August 7.

Clear business specification

In fact, since it was launched in the United States in the 1960s, more than 40 countries (regions) have issued such products. Its investment fields have also expanded from the original real estate to hotels, shopping malls, industrial real estate, infrastructure, etc., and has become mature financial products specialized in real estate investment.

In order to promote the development of domestic public REITs, regulatory authorities are also making continuous policy promotion.

"Since 2007, domestic academic, practical and regulatory circles have conducted in-depth research on the functional positioning, operation mode, product design, regulatory rules and other aspects of China's REITs market, and made many attempts. Especially since 2014, the extensive development of REITs has accumulated rich experience for the introduction of public REITs, and has trained certain talents. At present, the legal framework of public offering and its has been well prepared On August 7, a large public fund source in Beijing told the reporter of the 21st century economic report.

According to the disclosure, there are 51 guidelines issued by the CSRC, which mainly regulate the product definition, qualification and responsibilities of participants, product registration, fund share sale, investment operation, project management, information disclosure, supervision and management, etc.

Specifically, the guidelines make it clear that public REITs are listed closed-end mutual funds. More than 80% of the fund assets are invested in infrastructure asset-backed securities, and they obtain full ownership or management rights of infrastructure projects through special-purpose vehicles such as asset-backed securities and project companies; fund managers actively operate and manage infrastructure projects to obtain stable cash flow, More than 90% of the annual distributable amount of the fund after the merger shall be allocated to investors according to the requirements.

As for the way of offering fund units, public REITs determine the subscription price of fund units by off-line inquiry, and the public investors participate in the subscription of fund units at the subscription price determined by inquiry.

The guidelines also pointed out that the professional competence requirements of fund managers and custodians and the fiduciary duties of honesty, trustworthiness and diligence should be strengthened. We should focus on high-quality infrastructure assets, strictly control the quality of projects, and give full play to the professional roles of external management agencies, accounting firms and evaluation agencies. In addition, the fund investment restrictions, related party transaction management, loan arrangement, fund raising, information disclosure and other requirements should be clarified, and the "information disclosure as the center" should be fully implemented to ensure investors' full right to know, and strengthen the restriction of illegal behaviors.

"The pilot work of public offering REITs was promoted from the infrastructure field, and commercial real estate was not included in the pilot project. While continuing to implement the concept of housing without speculation, it also meets the needs of boosting the economy through infrastructure investment." Chen Jibang, chairman of the board of directors, said in an interview.

Chen Zheng believes that in the reality of export setback and consumption sluggish, in order to achieve the goal of short-term stable growth and medium and long-term economic structure transformation, it is necessary to increase infrastructure investment more efficiently. Then, the high-quality projects in key regions and industries can be brought to the market through public REITs, and the precipitation funds can be revitalized, which can bring incremental funds to the infrastructure market to a certain extent, and alleviate the lack of project capital in the market.

Organizations actively prepare for war

From the perspective of institutional feedback, many public offering managers have started the preparation of REITs business.

"We didn't have this kind of business before, but now we have started the preparatory work." On August 7, a large public fund source in South China told the reporter of the 21st century economic report.

It is worth noting that after the release of the draft, the fund industry association has also organized some institutions to hold a forum on infrastructure public offering REITs. Representatives of industry organizations attending the meeting included Harvest Fund, CICC fund, laterite innovation fund, Huatai (Shanghai) asset management, Shenwan Hongyuan securities, Taikang asset management, PICC asset management, Shenzhen Ping An Huitong investment management, Bohai Huijin securities asset management, Orient Securities Asset Management, China credit securities, Tianjin Gaohe equity investment fund, etc.

Representatives of industry organizations participating in the meeting pointed out that public REITs business is both an opportunity and a challenge for public fund managers. Industry organizations are paying close attention to studying policy contents, preparing internal systems, processes, personnel and projects, and supporting and promoting the smooth development of infrastructure public REITs pilot work. At the same time, representatives of industry organizations participating in the meeting also hope that the regulatory authorities and the association can issue relevant supporting rules as soon as possible, so as to promote the relevant departments to solve the tax problems of public REITs.

"On the asset side, increasing infrastructure construction, including old and new infrastructure, can provide a strong driving force for a new round of economic growth. Therefore, it is possible to increase the leverage ratio of its as a tool to solve the problem of infrastructure construction A large public fund in Beijing told the 21st century economic reporter.

The source further pointed out that "from the perspective of investors, the current risk-free interest rate has dropped. With its unique mode, REITs has become a new investment product in addition to stocks and bonds, effectively alleviating the" asset shortage "problem and guiding funds into the infrastructure sector

"The release of a series of public REITs policies is of great significance to revitalize stock assets, expand direct financing, and cultivate market innovation. However, it is also necessary to realize clearly that there are limited infrastructure projects that meet the requirements of rules and social funds in the pilot stage, the return on the underlying asset project level is often insufficient, the design of transaction structure needs to be explored, the supporting policies such as tax are yet to be issued, and the value-added of assets requires operators to reduce costs, increase efficiency and make careful arrangements. " Chen said.

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