Publicly raised infrastructure REITs are officially launched and are expected to consume trillions of yuan in direct investment

On April 30, the China Securities Regulatory Commission and the National Development and Reform Commission jointly issued the "Notice on Promoting the Pilot Work of Real Estate Investment Trust Funds (REITs) in the Infrastructure Sector" (hereinafter referred to as the "Notice") and the "Public Offering of Infrastructure Securities Investment Funds" Guidelines (Trial) (Draft for Comments)", which for the first time defines the investment scope, product definitions, professional competencies, offering arrangements and fund operations of public REITs in important aspects.

The notice pointed out that in order to promote the implementation of major national strategies and serve the real economy, REITs pilot projects will be carried out in accordance with national policies to support key areas and target infrastructure projects with good social benefits and stable investment returns. All units are required to cooperate closely to promote the public issuance of infrastructure REITs on stock exchanges, revitalize existing assets, form a virtuous investment cycle, attract more professional market institutions to participate in operation management, improve investment construction and operation management efficiency, and increase investment income levels.

The infrastructure REITs pilot will be implemented through the "public funds + ABS" approach, that is, public funds can purchase infrastructure REITs, and the funds can be listed and traded on exchanges. The original equity holders must participate in the strategic placement, with a share of no less than 20% of the issuance, and a holding period of no less than 5 years. The pilot projects mainly focus on large-scale infrastructure projects in key areas, including traditional infrastructure projects such as warehousing and logistics, transportation facilities, municipal engineering, and pollution control to make up for shortcomings. At the same time, new infrastructure pilots such as information networks are encouraged.

The official release of the pilot policy for infrastructure REITs marks the entry of China's infrastructure REITs into a new era of public offering development.

West China Securities believes that China's infrastructure has now entered the era of stock, and local government debt ratios are gradually rising. Coupled with the short-term disruption of domestic economic activities caused by the COVID-19 epidemic, there is great downward pressure on the economy. Therefore, the launch of REITs financing channels is a move that conforms to the development of the times. According to overseas experience, the launch of infrastructure REITs has a similar historical background - the real estate market has suffered setbacks, and economic growth has been weak or even negative. The current domestic pilot infrastructure industry has abundant asset reserves, which has laid a good asset foundation for the launch of publicly raised infrastructure REITs.