415-17, 2022 Tsinghua Wudaokou global financial forum was grandly held in Beijing. The theme of this forum is “stability and long-term development, and finance contributes to high-quality development”
Xiao Gang, member of the National Committee of the Chinese people’s Political Consultative Conference and former chairman of the China Securities Regulatory Commission, Lu Dabiao, member of the Party committee and deputy general manager of the Shanghai Stock Exchange, John P. morgridge, distinguished Chair Professor of the Wisconsin School of business at the University of Wisconsin Madison, USA, Deng Yongheng, former president of the Real Estate Research Institute of the National University of Singapore, China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) general manager assistant and general manager of the asset management center, Yu Zhiliang, managing director of CICC research department Zhang Yu, director of real estate research in Greater China, attended the Third Plenary Session – “infrastructure construction and REITs exploration and practice” , and expressed their views on the current development of REITs and how to promote it in the future.
Xiao Gang: study and improve REITs related regulations
Xiao Gang made suggestions on how to further promote the development of REITs from three aspects:
first, study and revise relevant laws or formulate separate regulations Xiao Gang said that REITs are securities in nature, but they are very different from stocks, bonds and asset securitization products. Relying on the securities law, REITs should be regarded as an independent securities variety, formulate special regulations, establish the nature orientation of REITs, and build a set of institutional norms such as issuance, listing, trading, information disclosure and investor protection that adapt to the characteristics of REITs. At present, the method of “public fund + ABS” is a feasible scheme in line with the current law, which is conducive to starting the pilot as soon as possible and breaking the ice. However, the problem is that there are too many levels of product structure, complex legal relations, increased operation and supervision costs, and more difficult to define and coordinate the responsibilities of market subjects. It is necessary to improve relevant laws and make new institutional arrangements for the problems existing in the pilot, so as to optimize product design, simplify product structure and transaction structure, and improve supervision methods.
second, optimize the operation mechanism Xiao Gang believes that first of all, local governments and enterprises should be encouraged to come up with more high-quality assets to participate in REITs Only by expanding the scale of REITs can the variety of products play its due role. It is necessary to further find out the basic number of projects, establish a classified project database, achieve “entering as much as possible”, implement the application conditions of projects, and reduce the application cycle of projects. Secondly, we should promote the organic combination of professional operation capacity of infrastructure and capital operation capacity. The value creation of REITs mainly comes from the operation management of asset portfolio and the management of capital structure, so it has the characteristics of natural industrial and financial integration. On this basis, the establishment of a raising mechanism, as long as an efficient and transparent raising mechanism is established, will be conducive to revitalizing the stock of assets and expanding and strengthening the platform for the combination of industry and finance. Finally, we should further promote the formation of a market-oriented evaluation and pricing system. The trade-off of market pricing is ultimately the result of market game. The original equity holders are willing to pay and investors are willing to buy. This is the equilibrium point of market pricing, which requires a long time of exploration.
third, strengthen investor education Xiao Gang pointed out that since the pilot of public REITs last year, investors are indeed immature, and their understanding of investment targets is not very clear. “Public fund + ABS” may not be a public investment familiar to a large number of investors public offering REITs’ underlying assets are the infrastructure with stable operation. The fluctuation of value is generally small, and the proportion of compulsory dividends every year is relatively high. Therefore, it is relatively stable compared with stock investment. However, investors should not expect the continuous and substantial growth of the project’s operating income and future cash flow. The risk and income of investing in REITs belong to the medium level. REITs are closed-end funds, which are very different from general public funds. They cannot be subscribed and redeemed at any time. Therefore, at present, we should further strengthen the publicity, earnestly strengthen the education of investors, implement the appropriate management of investors, cultivate the concepts of rational investment, long-term investment and value investment, and promote the steady and healthy development of REITs.
Lu Dabiao: continuously improve the supporting mechanism of REITs
Lu Dabiao pointed out that on the whole, the pilot of infrastructure REITs is in line with expectations, and the pilot work has achieved phased results, which are mainly reflected in four aspects:
I. the feasible implementation path is found under the existing laws and regulations
second, high-quality pilot projects have been excavated, and the aggregation effect has initially appeared
third, the REITs market operates smoothly and orderly, and the recognition of investors is relatively high
fourth, the infrastructure operation was stable and the performance exceeded expectations
Lu Dabiao believes that REITs is essentially an asset listing, which is different from stocks and bonds, and has the characteristics of stocks and bonds. It has stable income and return, and has low correlation with the price trend of stocks and bonds. In particular, the price trend consistency between REITs and stocks and bonds in the first quarter of this year is relatively small, and it is highly complementary to stocks. It is necessary to look at the development of REITs from the perspective of new large products at present, China’s infrastructure sector is large-scale and has deposited a large number of high-quality assets. REITs products have great potential in revitalizing stock assets and unblocking the investment and financing cycle
Lu Dabiao said that in the next stage, the Shanghai Stock Exchange will focus on four things in terms of REITs:
1. Focus on serving the national strategy and focus on the implementation of key projects and demonstration projects give full play to the capital market hub function of Shanghai Stock Exchange, promote the continuous supply of high-quality project resources, accelerate the pilot of affordable rental housing REITs, vigorously develop REITs projects in clean energy, innovation driven fields such as science and technology industrial parks, and livelihood guarantee fields such as cultural tourism will also be the focus of work.
second, continuously improve the supporting mechanism of REITs under the guidance of system construction under the guidance of the CSRC, the Shanghai Stock Exchange is speeding up the formulation of raising rules. Recently, it has solicited opinions from the whole society, improved the appropriate business system and trading system, and done a good job in raising reserves. At the same time, continuously improve the governance mechanism, optimize information disclosure and improve the operation efficiency of REITs; Timely promote relevant parties to carry out special legislation on REITs.
third, continuously improve the quality and efficiency of audit adhere to open door audit, deliver services to the door, listen to the opinions of the market, absorb the wisdom of all parties, pay close attention to improving the audit process and standards, and constantly enhance the satisfaction and sense of gain of market subjects.
fourth, do a good job in market supervision and investor education including continuously optimizing the daily supervision system, supervising and standardizing the operation, improving the pertinence and effectiveness of information disclosure and risk disclosure, maintaining the legitimate rights and interests of small and medium-sized investors, optimizing the market maker system, doing a good job in investor education, and guiding investors to correctly understand the financial attributes and risk characteristics of REITs.
Deng Yongheng: urgent need to develop a sustainable and solid market
Deng Yongheng pointed out that after the epidemic, China’s GDP growth and recovery took the lead, driving the global GDP recovery. Cross border real estate investment has been growing in Beijing and Shanghai. As a result of the rapid growth, house prices in most major cities in China have increased rapidly.
Deng Yongheng said that the research report recently released by the world economic forum shows that only 3% of the world’s cities are affordable. Doctors, police, firefighters and nurses can’t live near their workplace or in the city center. They need to spend a lot of time and money on back and forth transportation. At present, Chinese families do not have much choice but to invest all their savings in real estate, but this has high risk and is not safe at present, there is an urgent need to develop a long-term sustainable housing market in China. There must be a solid market, such as REITs market
Deng Yongheng believes that in the 1990s, we can see the rapid growth of the market value of American REITs, which immediately increased to a trillion market. Deng Yongheng cited the 2019 World Economic Forum Report as a summary. If only a small number of people in the world can afford housing, it will not be a world of sustainable development.
China REITs is a process of “building roads while driving”
Yu Zhiliang and Zhang Yu expressed their views on the REITs market in the next round table forum.
For the good performance of China’s REITs since its listing, especially the rise against the trend in the first quarter of this year, Zhang Yu believes that the stability of long-term income cash flow provides REITs with a very strong defensive performance, which is an embodiment of a risk aversion function when the stock market fluctuates sharply compared with the global mainstream REITs market, the price of China’s REITs is relatively high, but in fact, the underlying assets of China’s REITs are the best among the best and the best among the best
Zhang Yu said, at present, China’s REITs market is in its infancy. Although the circulation market value is very small, there will be raising in the future. More assets will be issued and listed in the form of REITs. This process will increase some effective asset supply and expand the market scale of REITs, including the scale of circulation market value in addition, the policy is also encouraging long-term capital and value investment oriented institutions to enter the REITs market. At the same time, investor education and information disclosure are also very important.
Yu Zhiliang shared his experience in the operation of China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) reit project. He believed that the industrial park itself is an important track for future development. Obviously, the cash flow characteristics and product attributes of REITs are highly consistent with the industrial park. This solves the important pain point of the Industrial Park: heavy investment and slow turnover, and can also well open an ultimate exit channel of the industrial park.
Yu Zhiliang said that REITs itself is a listing platform for assets. Investors attach great importance to the operating ability of assets, which will also promote the operating team to increase the value-added, transformation and improvement of assets, and strengthen the operating ability of the team. Therefore, REITs is not only a simple financing, but also makes the original equity holders pay more attention to the improvement of asset quality and promote the improvement of team ability. Whether the turnover of resources or the improvement of capacity are in line with the strategic objectives.
Yu Zhiliang believes that China REITs is a process of “building roads while driving”. Not only the regulators have done a lot of work, but also the original stakeholders and the working team have done a lot of research on the implementation. The “public fund + ABS” model is the best arrangement under the existing legal framework from the perspective of the development of REITs, there are some problems in the future development architecture, such as multi-level, long chain, asymmetric information and so on. Referring to the market of Hong Kong, China, REITs is a listed company. The advantage is that many governance issues can be managed and operated according to the listed company, and there will also be special supervision. Public funds are more professional in securities investment, but the professional team built in the underlying asset management is relatively limited. In the future, in terms of governance, we can consider the arrangement of “licensing” for the original equity holders.
Referring to whether the expansion of REITs in the future will be related to the real estate industry, Zhang Yu said that reits’ overseas development route starts from real estate and then infrastructure. China’s REITs starts from infrastructure. Whether it can raise funds from real estate in the future may be a trend compared with the international market, the introduction or mechanism reform and innovation of most REITs are linked to the local real estate market risk, even the related system of the financial system. In this sense, REITs is a financing of equity varieties. While reducing leverage, it is directly linked to asset pricing. The asset price is defined through the rate of return, rather than through the law of market comparison, so it will promote the reflection of the real price of assets.
Whether more private enterprises will join REITs in the future, Zhang Yu said, reits’ underlying assets are not only dominated by state-owned enterprises, but also composed of state-owned enterprises and private enterprises in the future the bottom assets of the first REITs are mostly state-owned enterprises, because many industries selected are industries dominated by state-owned enterprises. When accelerating the promotion of public REITs projects, if we can consciously pilot some private enterprise projects, it is equivalent to promoting the development of the whole REITs market.
