ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintIcon Twitter
Markets

New Chinese REITs rise in market debut

Funds restricted to infrastructure investment to help strapped local governments

One of China's new REITs focuses on warehouse logistics at Shenzhen's Yantian Port.    © Reuters

HONG KONG -- China's first batch of listed real estate investment trusts ended their first day of trading higher on Monday as the government launched a new channel for local governments to raise infrastructure funds.

In Shenzhen, the Bosera CMSK Industrial Park Closed-end Infrastructure Securities Investment Fund jumped 14.7% while the AVIC Shougang Biomass Close-end Infrastructure Securities Investment Fund climbed 9.5%. Ping An Guangzhou Communications Investment Guangzhou-Heyuan Expressway Closed-end Infrastructure Fund made the weakest start, eking out a gain of just 0.7%.

In Shanghai, the Zheshang Securities Shanghai-Hangzhou-Ningbo Expressway Closed-end Infrastructure Securities Investment Fund closed up 5% after paring early gains while the CICC GLP Warehousing Logistics Closed-end Infrastructure Fund finished up 2%. Soochow Suzhou Industrial Park Closed-end Infrastructure Securities Investment Fund trailed with a 0.6% increase.

Together, the nine REITs that debuted on Monday -- five in Shanghai and four in Shenzhen -- own assets ranging from sewage treatment plants and toll roads to industrial parks and raised about 30 billion yuan ($4.65 billion) in well-subscribed offerings.

"This approach to securitization ought to open the window for further liberalization of assets that can adopt the REIT structure," Jeffries equities strategists led by Sean Darby said in an investor note on Monday. "Given the size of China's infrastructure, the inaugural launch of the nine REITs is a precursor to a market that should eventually rival the U.S. in terms of size."

U.S. REITs have a combined market capitalization of $1.2 trillion, according to trade group Nareit. Goldman Sachs estimates China's REIT market, in value terms, could reach $3 trillion if the authorities widen the program to include traditional real estate assets.

Beijing had been hesitant about REITs, fearing they could further push up home prices that are already among the world's highest as compared to local incomes.

Instead, China's nine new REITs are providing relief for financially stretched local governments to pay for new infrastructure. Regional and local governments together had some 25.6 trillion yuan in outstanding debt at the end of 2020, with many owing more than their annual revenue, raising concerns.

Infrastructure managers wanting to join the pilot REIT program, more than a decade in development, must have assets located in one of six designated economic regions, including the Yangtze River Delta and the Guangdong-Hong Kong-Macao Greater Bay Area.

"The trial is quite small but a step in the right direction with local government finances stretched," said Hao Hong, head of research at BOCOM International in Hong Kong. "It is also a good time to tap investors for funds as market conditions are quite conducive and funds for retail investors are looking for a stable source of returns."

"The oversubscription of our C-REIT is a very encouraging sign," said Teresa Zhuge, executive vice chairman for the China arm of Singapore-based real estate investment group GLP. The IPO of CICC GLP Warehousing, which owns seven logistics centers, raised 5.8 billion yuan.

"We continue to see robust investor demand for stable logistics and industrial assets and income streams in China," she said.

The National Development and Reform Commission (NDRC), the country's top economic planning agency, will recommend shortlisted projects to the China Securities Regulatory Commission (CSRC) for packaging into REITs.

Asset managers are required to retain a 20% stake in their REITs for five years. REIT borrowings are capped at 28.6% of assets, with such funds only to be used for maintenance and renovation rather than acquisitions, while 90% of income is to distributed as dividends. Retail investors, meanwhile, can only hold 16% ownership in aggregate per REIT.

"REITs can help corporates increase direct financing and lower leverage. This is also an instrument which offers a middle level of risk and stable yields, expanding investment channels for investors," the NDRC and the CSRC said in a joint statement in May. "Infra-REITs are also helpful in raising project capital and reducing debt burden for local governments.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Try 1 month for $0.99

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends October 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to Nikkei Asia has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more