Event:
On April 15, 2022, in order to further promote the pilot of publicly offered infrastructure securities investment funds (REITs), under the guidance of China Securities Regulatory Commission, Shanghai Stock Exchange and Shenzhen Stock Exchange publicly solicited opinions from the whole market on the business guidance No. 3 of publicly offered infrastructure securities investment funds (REITs) – newly purchased infrastructure projects (Trial) (Draft for comments).
REITs business guidance No. 3 document is the basic rules for Shanghai Stock Exchange and Shenzhen Stock Exchange to regulate and guide the newly purchased infrastructure projects and related raising, information disclosure and other matters during the existence of REITs fund, and stipulates the key matters such as the business process nodes of newly purchased projects and the sale of raised shares.
Comments:
REITs raising mainly refers to the act of raising funds again after IPO and using them for newly purchased assets. The issuance of raising rules is conducive to the issuance of additional shares of REITs products currently listed, the acquisition of high-quality assets with good operation, the optimization of investment portfolio, the reduction of relevant risks, and the realization of the long-term value of REITs as an asset securitization platform. At the same time, enterprises can form a virtuous circle of investment and financing of “investment and construction – operation – Exit – reinvestment”, accelerate the return of funds, reduce the debt ratio and help the continuous expansion of business scale.
Upon the expiration of the 12-month raising requirement, it will benefit the enterprises that have REITs listed: REITs business guidelines No. 3 puts forward requirements for the fund. The REITs fund newly purchased infrastructure projects shall comply with relevant laws and regulations, have stable investment operation, standardized basic accounting work, operate for 12 months in principle, and the infrastructure projects held shall be in good operation.
In the future, REITs fund will serve as an asset securitization platform for original equity holders, and the subsequent raising and issuance process will be simplified compared with the initial issuance and listing process. Enterprises that have listed REITs will directly benefit: the original equity holders can quickly realize the listing of their operating assets in the REITs market through the raising mechanism, and then obtain: (1) revaluation of the value of operating assets; (2) Improve the quality of statements, especially the marginal improvement of asset turnover, roe and free cash flow; (3) Obtain equity financing funds to help business expansion.
The transaction price in the secondary market is much higher than the underlying asset pricing, and the raising will improve the return rate of listed REITs:
At present, the average valuation of the listed REITs project is about 20 times (the corresponding cash distribution rate is 5%), which is much higher than the pricing of the underlying assets in the primary market. Under the raising scenario, REITs products raise matching funds at a high valuation to acquire underlying assets (the cash distribution rate corresponding to the evaluation price of listed projects is about 6.3%). After the raising (equivalent to asset injection), the transaction valuation of the existing REITs project will be greatly reduced; As REITs itself has the characteristics of relatively stable income and low risk, its attraction will increase significantly and the transaction price may rise further under the background of asset shortage.
The long-term existence of REITs premium will eventually affect the valuation system of A-Shares for enterprises with operating assets:
At the time of IPO, the assessed value of REITs project has a partial premium over the book value; After listing, the trading price of the secondary market has realized a partial premium relative to its evaluation price. At the same time, under the background of asset shortage, REITs products screened and approved by the national development and Reform Commission and the China Securities Regulatory Commission at various levels are more reliable in quality and yield, and have sustained attraction. Therefore, their premium may exist for a long time. The valuation difference between REITs project and A-share operating assets will gradually narrow in the long term. Therefore, the high premium rate of REITs is expected to reshape the valuation system of the existing operating assets of A-share and improve its value.
Investment suggestions:
The issuance of raising rules may shorten the project application process and accelerate the securitization of operational assets. With the help of its REITs platform, enterprises can form a virtuous cycle of “investment and construction – operation – Exit – reinvestment”, accelerate the return of funds, reduce the debt ratio and help the continuous expansion of business scale. It is suggested to pay attention to enterprises with high operating assets or listed on REITs platform, such as China Communications Construction Company Limited(601800) , Beijing Capital Eco-Environment Protection Group Co.Ltd(600008) , China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) , Shenzhen New Nanshan Holding (Group) Co.Ltd(002314) , China Railway Construction Corporation Limited(601186) , Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) , China Railway Group Limited(601390) .
Risk warning: the application of REITs project is less than expected, and the secondary market price fluctuates sharply.
