Public offering REITs is coming soon, the market size can reach 6 trillion! Which products are expected to benefit first?

SMM Network News: since the beginning of this year, the construction of the (REITs) system of real estate investment trusts in the field of infrastructure has accelerated significantly. The relevant departments issued the pilot work notice and the relevant draft for soliciting opinions at the end of April, and in August, the General Office of the National Development and Reform Commission issued the notice on doing a good job in the declaration of (REITs) pilot projects in infrastructure investment trusts. Last Friday, the CSRC issued guidelines on Public offering of Infrastructure Securities Investment funds (for trial implementation), formally establishing the institutional system of REITs.

Analysts told Futures Daily that the guidelines are not only a milestone in China's capital markets and infrastructure investment and financing, but also mean that major fund companies can report such products as soon as today.

The market has been looking forward to it for a long time. What's so good about REITs?

The so-called REITs, the real estate investment trust fund, is a trust fund that collects the funds of most investors by issuing income vouchers, hands it over to special investment institutions for real estate investment management, and distributes the comprehensive investment income to investors in proportion. It is also an important means to realize real estate securitization.

With the advantages of low threshold, high dividend ratio and strong liquidity, public REITs has become a good way for small and medium-sized investors to invest in real estate projects indirectly. In fact, since the public offering REITs was launched in the United States in the 1960s, more than 40 countries (regions) have issued this kind of products, and its investment field has also expanded from the initial real estate to hotels, shopping malls, industrial real estate, infrastructure and so on, and has become a mature financial product specializing in real estate investment.

It is understood that some trust companies in China created related products as early as 2002. After 2007, the domestic academic, practical and regulatory departments have made more and more in-depth research on the functional positioning, operation mode, product design and regulatory rules of China's REITs market, and even made many attempts. For example, in early 2009, the people's Bank of China, together with relevant departments, formed the overall framework of the initial pilot of REITs. In 2011, the first REITs account product appeared in China: REITs products in Asia-Pacific region invested by UBS.

The listing of CITIC Airlines, the first real equity REITs product in China, has had a significant impact on the development of REITs in China. "after all, the extensive development of similar REITs has accumulated a wealth of experience and trained certain talents for the launch of public offering REITs. At present, the legal framework of public offering REITs, regulatory environment, market preparation and other conditions have been basically mature. " Some industry insiders, who spoke on condition of anonymity, told Futures Daily.

Jing Chuan, deputy general manager and chief economist of CUHK Futures, agrees with this. In his view, the institutional construction of REITs has accelerated significantly since 2020. On April 30th, the China Securities Regulatory Commission and the National Development and Reform Commission issued the Circular on promoting the pilot work of Real Estate Investment Trust funds ((REITs)) in Infrastructure, and issued supporting guidelines to clearly carry out infrastructure REITs pilot projects on a case-by-case basis in key areas. On August 3, the General Office of the National Development and Reform Commission issued the notice on how to do a good job in the application of the pilot project of real estate investment trust fund (REITs) in the field of infrastructure. On August 7, the Securities Regulatory Commission issued the guidelines on Public offering of Infrastructure Securities Investment funds (for trial implementation), the institutional system of infrastructure REITs was formally established, and the Chinese version of REITs took an important step forward.

The "guidelines" clearly define the responsibilities of all parties from various angles.

There are 51 "guidelines" issued by the CSRC, which mainly standardize product definition, qualifications and responsibilities of participants, product registration, fund share sale, investment operation, project management, information disclosure, supervision and management, etc.

First of all, the guidelines define the product definition and mode of operation. The guidelines clearly propose that the public offering of infrastructure securities investment funds (hereinafter referred to as "infrastructure funds") adopts the product structure of "public offering funds + infrastructure asset-backed securities". There is an actual control relationship between the fund manager and the infrastructure asset-backed securities manager or is controlled by the same controller.

The guidelines also point out that infrastructure funds should have more than 80 per cent of fund assets invested in infrastructure asset-backed securities and obtain full ownership or operational rights of infrastructure projects through special purpose vehicles such as asset-backed securities and project companies. Fund managers take the initiative to operate and manage infrastructure projects to obtain stable cash flow, and allocate more than 90% of the annual available allocation of funds to investors as required.

With regard to the above mode of operation, a person from a large public offering fund in the south said that the guidelines clearly implement equity investment orientation in asset selection, scheme design, pricing and issuance, and clearly define the dominant position of public offering funds in terms of project adjustment, issuance, operation, and letter approval, and provide liquidity through the secondary market transaction mode, which is virtually no different from overseas public offering REITs in terms of operation mode, which is worth looking forward to.

Secondly, the guidelines are regulated from the perspective of fund managers and custodians. The guidelines require fund managers not only to have the ability of regular public offering fund investment management, but also to have not less than three principal responsible personnel with more than five years of experience in investment management or operation of infrastructure projects; have sound and effective infrastructure fund investment management, project operation, internal control and risk management systems and processes. At the same time, the fund custodian is required to have experience in the custody of asset management products in the infrastructure field and be equipped with sufficient professionals for the development of infrastructure fund trusteeship business.

As a professional institution, the guidelines emphasize that fund managers should also strictly allow projects to enter the customs, conduct comprehensive due diligence on the ownership, cash flow, operation, and other relevant conditions of infrastructure projects, jointly carry out due diligence with asset-backed securities managers, and, if necessary, employ securities companies qualified for sponsor business as financial consultants to conduct due diligence on the project.

In terms of product issuance, the guidelines give pricing methods and distribution arrangements, including strategic placement, offline inquiry object, distribution of sale proportion, fund sales, fund raising failure treatment and so on. In operation, on the one hand, it is necessary to standardize the investment operation of the fund, such as investment restrictions, loan arrangements, related party transactions, fund expansion and other detailed requirements. On the other hand, it is necessary to strengthen the operation and management of infrastructure projects, allowing fund managers to set up special subsidiaries to undertake the responsibilities of operation and management of infrastructure projects, or entrust qualified external management agencies to take charge of part of the responsibilities of operation and management.

Finally, in terms of letter cloak and supervision, the guidelines point out that it is necessary to adhere to "information disclosure as the center", ensure that the operation of the fund is open and transparent, and make clear all the information that needs to be disclosed in the sale, operation and periodic reports. The CSRC and relevant dispatched offices shall supervise and manage the fund managers, asset-backed securities managers, custodians and other professional institutions of infrastructure funds and their employees, and punish violations of laws and regulations in accordance with the law. At the same time, the Stock Exchange, the China Securities Association and the China Foundation Association are required to implement self-regulatory management of infrastructure fund-related activities.

The prospect of REITs is broad, and the market scale is expected to reach 6 trillion yuan.

For the future of public offering REITs products, Wang Hongying, dean of China (Hong Kong) Financial Derivatives Investment Research Institute, believes that the development prospect is huge.

"especially in the current special environment, in order to reduce the impact of Europe and the United States on China's economic expansion, China will naturally launch more infrastructure construction to maintain the stable growth of our economy." He said that although infrastructure investment is expensive, the payback period for investment is generally long, so there is a great demand for infrastructure financing in various places. Under such circumstances, promoting the development of REITs as an innovative financial tool also enriches the means of local financing to a certain extent, and can provide a lot of funds for the infrastructure construction of our country.

On the other hand, considering that REITs also pushes stable and long-term infrastructure assets to the capital market, provides investors with financial products with long-term configuration, stable dividends and transparent management, and provides an effective supplement to China's capital market, it can also change the situation that infrastructure investment is mainly dominated by finance to some extent.

In the context of the current pressure on financial funds, Jingchuan believes that the introduction of social stock funds to participate in infrastructure projects can not only solve some of the capital problems, but also an important step in market-oriented reform. "this has enabled some infrastructure projects that have been shelved in the past due to financial problems to be carried out smoothly, which has a certain pulling effect on the domestic macro-economy." Jingchuan said.

In fact, according to Wang Hongying's prediction, in the next three to five years, such products are likely to provide about 6 trillion yuan in financial support for China's infrastructure construction, thus further improving the speed and efficiency of China's infrastructure construction. make a good reserve for the internal circulation of China's economy in the future.

In Jingchuan's view, in a sense, this is also a major national measure to prevent risks, deleverage, stabilize investment, and make up for weaknesses, which is conducive to actively supporting the implementation of major national strategies and deepening structural reform on the financial supply side. we will strengthen the ability of the capital market to serve the real economy, further innovate investment and financing mechanisms, effectively invigorate existing assets, and promote high-quality infrastructure development.

As for the impact of REITs on commodities, Jingchuan believes that it mainly depends on whether it can effectively guide the stock of funds into the field of infrastructure, and whether it can speed up the implementation of infrastructure projects. If we can effectively solve the capital problem of infrastructure investment and speed up the landing of infrastructure projects, it will effectively stimulate the downstream demand for non-ferrous and black goods and support the prices of the above-mentioned commodities.

Specifically, metals such as copper and aluminum will obviously benefit from the accelerated promotion of projects in the field of electric power investment; steel and its upstream varieties will benefit more from the implementation of transportation projects; and projects such as residential renovation will not only benefit the varieties of steel, but will also boost the demand for downstream varieties such as glass and PVC. Generally speaking, the promotion of infrastructure projects by REITs products will have an overall beneficial impact on industrial products. " He said.

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