China’s First Publicly Traded Infrastructure REITs Oversubscribed on Debut

China’s first batch of publicly traded infrastructure-focused real estate investment trusts (REITs), which aim to raise around $4.8 billion for infrastructure projects, were all oversubscribed on their debut on Monday.

The strong market sentiment toward the nine REITs will buoy the Chinese government’s drive to introduce private money into infrastructure projects and ease local governments’ heavy debt burden.

REITs, which raise money for real estate assets, are popular in developed markets. But China has been wary of the products due in part to concerns they could further fuel inflated home prices. In 2015, the country’s first publicly traded REIT launched, which invested in a commercial real estate project in the southern megacity of Shenzhen and was open to trading by mom-and-pop investors. However, it remained the only one for a long time, with progress hindered by legal, regulatory and tax issues, experts said.

As the pandemic piled financial pressure onto localities last year, Beijing decided to kick off a pilot program for infrastructure-related REITs in April 2020.

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The nine infrastructure REITs were well received because the projects they fund were screened by the authorities and are all relatively high-quality, an analyst with a securities firm said. To qualify for securitization, infrastructure projects must have clearly defined ownership and the ability to generate stable income. Owners and operators should have a proven track record and no recorded significant rule violations in the past three years.

In the pilot, REITs were selected by the National Development and Reform Commission (NDRC), the top economic planning body, and recommended by the NDRC to the China Securities Regulatory Commission. On May 17, the securities watchdog approved the registration of the nine REITS, which cover projects including highways, waste disposal facilities and industrial parks.

Subscriptions for the nine REITs were initially designed to end as late as Wednesday, but they all ended Monday due to oversubscriptions.

These infrastructure-related REITs have a complicated structure — they allow investors to buy shares in mutual funds, which invest in asset-backed securities that hold the ownership or management rights of infrastructure projects. In return, the REITs pay investors dividends from the revenue generated by the underlying projects — such as toll fees or rent.

Five of the nine REITs will be traded on the Shanghai Stock Exchange, while the other four will be traded on the Shenzhen bourse. A mutual fund industry insider said the nine REITs’ trading prices are expected to be stable in the future given that their revenue is unlikely to fluctuate significantly.

Contact reporter Tang Ziyi (ziyitang@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)

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