Caixin
Dec 27, 2016 07:02 PM
FINANCE

PPP Project Reviews, Listings Get Streamlined

(Beijing) — China is trying to attract more capital to its public-private partnership (PPP) infrastructure projects by securitizing the underlying assets, thereby speeding up the cash flow back to investors.

Securities regulators will streamline the process of reviewing and listing the PPP projects through a “green channel” set up by the stock exchanges and the Asset Management Association of China. The move was detailed in an announcement issued Monday by the National Development and Reform Commission (NDRC) and the China Securities Regulatory Commission (CSRC).

PPPs are mainly infrastructure building projects mostly proposed by local governments and carried out in collaboration with private companies. Over 1,000 PPPs, with a total investment of about 1.8 trillion yuan ($259 billion), have been launched so far this year, according to the state-run Xinhua News Agency.

PPPs that have been in business for at least two years and generated a stable cash flow will be strongly encouraged to raise funds through selling asset-backed securities, according to the announcement.

Priority should also be given to PPPs that are carried out by leading companies and local governments that have incurred less debt, the NDRC said. Infrastructure PPPs in line with national development strategy, such the Belt and Road Initiative, should also be encouraged to securitize their assets.

Since late 2013, China has started to tap private capital to fund infrastructure building through PPPs. The move comes amid an economic slowdown coupled with growing concerns over the mounting debts of local governments.

PPPs mainly cover infrastructure projects, such as transportation and energy, and it sometimes takes more than a decade for investors to get their returns. That delay, plus the difficulty in getting loans from banks that often favor giant state-owned enterprises, has made private companies reluctant to make such infrastructure investments.

“Securitization will effectively liquidize the assets of the PPPs, as the ABSs (asset-backed securities) could be traded more freely in stock exchanges, which lowers the difficulty in raising funds and addresses the mismatch of investment maturity,” said Zhang Lu, an assistant analyst at CEBM Group, a subsidiary of Caixin Insight Group.

But Zhang also warned that as more investors get involved in funding PPPs through buying up ABSs, the companies that originally funded the projects — and are supposed to engage in running them — may back out after receiving the cash. That move could affect the projects’ quality and thus undermine the returns for ABS investors.

The NDRC and the CSRC said more funds that specifically support urban construction and infrastructures will be encouraged to purchase the ABSs of the PPPs, in an attempt to diversify the investors and sustain the funding support.

Contact reporter Dong Tongjian (tongjiandong@caixin.com)


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