On April 30th, 2020, China Securities Regulatory Commission and the National Reform and Development Commission jointly announced that Real Estate Investment Trusts (REITs) were to be experimentally established in the area of infrastructure. After 10 years’ efforts, China has finally made a major breakthrough in the long-awaited public offering of REITs. This also marked a historical turning point in its drive to innovate and reform the financial and capital market.
Yuexiu Group has been pioneering, witnessing and facilitating the public offering of REITs. As early as 2005, thanks to the efforts of Yuexiu Group, Yuexiu Real Estate Investment Trusts have been successfully listed on the Hong Kong Stock Exchange and become the first of the kind globally focusing on real estates of Mainland China. During his term of office as a deputy to the 12th National People’s Congress, Mr. Zhang Zhaoxing, chairman of Yuexiu group proposed to accelerate the legislation and experimental work of REITs public offering for three consecutive years. On the basis of almost 15 years’ experiences since the public listing of REITs, Yuexiu Group learned deeply how those sectors functioned, to which its underlying assets belonged and how REITs could be managed more effectively. It has also accumulated high-quality asset reserves, and built the professional capacity to manage assets as well.
Through real transactions, REITs products turn immovable properties or income rights of infrastructure into standardized financial products featuring high mobility and low investment threshold, making it possible to effectively link stable incomes from immovable properties and infrastructures with demands of personal investors. Through securitization, social capital such as saving funds can also be channeled into the fields of immovable properties and infrastructure and become the equity capital of enterprises in such fields.
Under the new normal economic circumstances, REITs public offering is conducive to implementing the policies of structural reform of supply side by the central government to deleverage and improve underdeveloped areas, and encouraging social capital to support real economy. Particularly when the macro economy is hit hard by the epidemic, the trusts have great significance in stabilizing investment and promoting economic development.
In recent years, China’s infrastructure construction has witnessed remarkable growth and played a significant role in promoting economic and social development and enhancing people’s livelihood. However, some of its undesirable traits such as huge demand for capital, high investment threshold, long payback period, and high liability ration of investor create barriers for its sustainable development in the new era. As an innovative financial tool linking real economy and capital market, REITs provide a new way for ordinary people to invest in infrastructure construction and share investment benefits. The trusts also play a positive role in directing social capital into infrastructure investment and establishing a better market-oriented mechanism to allocate factors of production. Moreover, the trusts open up a new channel for enterprises in this field to gain access to financing.
As a key infrastructure, toll expressway produces stable returns, and consequently become a vital underlying asset of REITs. As a renowned enterprise engaged in investment, operation and management of toll expressway, Yuexiu Transport Infrastructure Limited, a subsidiary of Yuexiu Group, has been attached great importance to and fully supported the experimental work of REITs public offering. The toll expressways in the procession of Yuexiu Group as well as its outstanding market reputation, professional capacity and excellent performance all lay a solid foundation for its participation in this project. Seizing the opportunity of this favorable policy, Yuexiu Transport is playing an active role in the feasibility study in a bid to become one of the first domestic experimental enterprises. It will set a good example for the market, bring stable and sustainable returns to the investors, and contribute significantly to the sustainable and healthy growth of China’s capital market.
