To ensure smooth implementation of pilot projects of publicly offered infrastructure REITs, standardize the listing review, continuous regulation and trading operations of publicly offered infrastructure REITs, maintain normal market order, and protect investors’ legitimate rights and interests, SZSE, based on the opinions previously solicited from the market, officially released three sets of supporting rules for publicly offered infrastructure REITs on January 29 according to the overall plan of China Securities Regulatory Commission (CSRC). SZSE Press Secretary answered reporters’ questions on topics that the market is concerned about such as the progress of pilot projects, the formulation of the rules and next-step work arrangements.
I. Please give an introduction to the progress of pilot projects of publicly offered infrastructure REITs.
A: On 30 April 2020, CSRC and the National Development and Reform Commission jointly released the Notice on Advancing Relevant Work of Pilot Projects of Real Estate Investment Trusts (REITs) in the Field of Infrastructure (the “Notice”), marking the official start of the pilot projects of publicly offered infrastructure REITs. The launch of pilot projects of publicly offered infrastructure REITs, which has filled in gaps in publicly offered REITs in China, is of great significance to giving better play to the role of the capital market as a hub, putting existing infrastructure assets to better use, diversifying varieties on the capital market, and improving the capability in serving the real economy. On 7 August 2020, CSRC issued the Guidelines for Publicly Offered Infrastructure Securities Investment Funds (Trial) (the “Guidelines for Infrastructure Funds”), laying down further specific arrangements for the pilot project of publicly offered infrastructure REITs. On 11 October 2020, the General Office of the CPC Central Committee and the General Office of the State Council announced the Implementation Plan for Comprehensive Pilot Reform in Shenzhen to Build the City into a Pilot Demonstration Area of Socialism with Chinese Characteristics (2020-2025), which has again proposed carrying out pilot projects of publicly offered REITs in the field of infrastructure. A series of policies and regulations have provided important support for smooth launch of publicly offered infrastructure REIT products.
As an important platform that conducts asset securitization business and advances innovation practices of REITs, SZSE is the earliest exchange in the Chinese mainland to explore introduction of REITs and has always been dedicated to promoting the research, development and innovation of domestic REITs. Since 2014, SZSE has successively launched a series of benchmarking products including the first private REITs in the Chinese mainland, the first REITs with publicly offered funds as carriers, the first private logistics & warehousing REITs, and the first private bridge infrastructure REITs. So far, SZSE has launched nearly CNY 100 billion private REITs, and a characteristic REITs segment has initially taken shape, which is the largest of its kind in China, covers all real estate types, has strong market leading effect and gathers diversified investors.
Since the release of the Notice, SZSE has earnestly implemented its guiding principles and the requirements specified in the Guidelines for Infrastructure Funds. Under the great support of relevant ministries such as the National Development and Reform Commission, SZSE has, according to the overall plan of CSRC, drafted business rules, developed technology systems, connected to reserve projects, carried out investor education, and advanced preparatory work for pilot projects of publicly offered infrastructure REITs in a steady and orderly manner. Currently, relevant supporting business rules have been completed after opinions were solicited from the public; the technology systems involving project application and review, product book building and release and fund listing and trading and so on have been basically ready for use; and the common problems in pilot projects such as tax policy and transfer of state-owned assets are being actively solved, ensuring steady implementation of the first batch of pilot products.
II. Please give a general introduction to the business rules released this time.
A: By referring to the requirements on publicly offered securities, we have drafted, formulated and officially released the supporting business rules for publicly offered infrastructure REITs. This is to conscientiously implement the guiding principles of the Notice and the relevant requirements specified in the Guidelines for Infrastructure Funds, standardize the project review, continuous regulation, listing and trading, etc. of publicly offered infrastructure securities investment funds, and promote steady start and healthy development of publicly offered infrastructure REITs.
The business rules that we released this time include “1 measure+2 guidelines”, namely, the Measures of Shenzhen Stock Exchange for Publicly Offered Infrastructure Securities Investment Fund Business (Trial) (the “Business Measures”), the Guidelines No. 1 of Shenzhen Stock Exchange for Publicly Offered Infrastructure Securities Investment Fund Business: Review Considerations (Trial) (the “Guidelines for Review”) and the Guidelines No. 2 of Shenzhen Stock Exchange for Publicly Offered Infrastructure Securities Investment Fund Business: Placement Business (Trial) (the “Guidelines for Placement”).
The Business Measures is our basic rules for publicly offered infrastructure REITs business. It standardizes the important nodes and key links in the whole business process, and follows the regulatory requirement of overseeing infrastructure fund products as a whole. Centering on the product architecture of “publicly offered funds+asset-backed securities”, it defines the powers and responsibilities of all participants and stipulates how they should collaborate with each other, and strengthens self-disciplinary regulation, to protect investors’ legitimate rights and interests.
The Guidelines for Review provides detailed provisions on important content such as participating institutions, infrastructure projects, evaluation and cash flow, transaction structure and operation management arrangements. The focus is on quality assets and quality entities, aiming to improve review transparency and control project quality at the access.
The Guidelines for Placement focuses on the operating requirements on the placement of publicly offered infrastructure REITs. With reference to SZSE’s relevant procedures for stock price inquiry and issuance, it matches the unique properties of infrastructure funds and sets out regulations on book building and pricing, strategic placement, offline and public investor subscription, expansion, supervision & management etc. of infrastructure funds, to improve product issuance efficiency and promote liquidity building.
III. Compared with the exposure drafts released earlier, what are the main revisions in the supporting rules for publicly offered infrastructure REITs officially released this time?
A: From September 4 to 15 2020, SZSE sought public opinions on the three supporting rules, namely, the Business Measures, the Guidelines for Review and the Guidelines for Placement, and received nearly 30 feedback opinions in written form. Overall, market participants have given positive views on the arrangements laid down in the supporting rules and believed that publicly offered infrastructure REITs are of great significance. They have put forward targeted, constructive and feasible suggestions and opinions. During the period, under the guidance of CSRC, SZSE organized relevant parties to discuss the supporting rules and fully absorbed and adopted reasonable and feasible advice. The main revisions are as follows:
First, improving strategic placement arrangements for original rights holders. To ensure sustained and stable operation of infrastructure funds and reserve room for shareholders’ participation in strategic placement arrangements under some special circumstances, the Business Measures has made it clear that the minimum strategic placement shares that original rights holders such as the controlling shareholder or de facto controller of an infrastructure project should hold shall be not less than 20% of the total issue volume of the fund relating to the infrastructure project in principle.
Second, improving relevant arrangements for transaction mechanisms. To enhance the liquidity of the secondary market, the Business Measures has adjusted the price limit on the first day of listing to 30%, while maintaining it at 10% on subsequent trading days. It is stipulated that in principle, fund managers shall choose no less than one liquidity service provider to offer liquidity quotation service. It has further made it clear that infrastructure funds can participate, as pledged bonds, in pledged-style negotiated repo and pledged-style tri-party repo, and the strategic placement shares held by investors other than the original rights holder and its related parties under the same control can participate in pledged-style negotiated repo.
Third, improving relevant requirements on equity changes and tender offer. To make it easy for investors to participate, the Business Measures has adjusted the information disclosure threshold for changes in share equities of infrastructure funds from 5% to 10%. Given that there is a demand of holding over 30% of shares on some original rights holders and it is unlikely to have a major impact on the operation of fund assets if fund holders hold 30% of fund equities, the Business Measures has raised the threshold for tender offer from 30% to 50%.
Fourth, refining the definition of important cash providers. Based on the suggestions of market institutions, the Guidelines for Review has revised the definition of important cash flow providers, and raised the proportion of the total cash flow provided by the single cash flow provider of an infrastructure asset and its related parties in the total cash flow of the infrastructure asset in the same period from 5% to 10%.
Fifth, adjusting the situations when a risk warning on subscription prices should be issued. Given that the issuance pricing shall be based on the actual quotations of offline investors, with reference to relevant requirements of the registration-based IPO system of the ChiNext Board, the Guidelines for Placement has stated that if the subscription price is higher than the median or the weighted mean of the quotations of offline investors, whichever is lower, a risk warning notice shall be issued in advance.
IV. Please give a brief introduction to the next arrangements for the pilot project of publicly offered infrastructure REITs.
A: SZSE will conscientiously carry out the guiding principles of the Fifth Plenary Session of the 19th CPC Central Committee and the Central Economic Working Conference, implement the working concepts of “openness, transparency, integrity and impartiality” in all work, and adhere to the general principle of pursuing progress while ensuring stability. We will seize the new development phase and implement the new development philosophy in depth. We will proactively advance the formation of the new development pattern, continuously improve basic systems, focus on increasing the proportion of direct financing, and steadily promote relevant work of the pilot project of publicly offered infrastructure REITs. First, we will go all out to ensure a good job in project review, product placement, listing & trading, continuous regulation and market organization, strictly control the quality of pilot projects, help expand investor groups, and strive to enhance the liquidity of the secondary market. Second, we will continue to do well in publicity and interpretation of rules, carry out investor education in depth, organize training programs and strengthen market guidance, in a bid to build a consensus and create a good atmosphere in the market to steadily advance pilot projects. Third, we will promptly sum up experience in pilot projects, find out difficulties and boost refinement of relevant supporting policies such as tax policy, transfer policy of state-owned assets and investment policy, to lay a solid foundation for the steady launch and sound development of REIT products.
