China’s first Reits make steady start on market debut as investors hunt for stable yield

The nine Reits, which are linked to underlying infrastructure projects, raised a total of 30 billion yuan (US$4.7 billion), according to Jefferies
The nine Reits made first-day gains ranging from 0.7 per cent to as much as 15 per cent

Link Reit

Zhang Shidongin Shanghai

Published: 3:42pm, 21 Jun 2021

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China’s first batch of publicly traded real estate investment trusts (Reits) got off to a steady start on their debut, as traders chased the new asset-backed products that yield stable returns.

The nine Reits, which are linked to underlying infrastructure projects from industrial estates to waste water treatment plants, rose above their offer price on the mainland’s exchanges on Monday. The one backed by assets tied to China Merchants Shekou Industrial Zone jumped by 15 per cent, the most among all the debutants. The Reits linked to Soochow Suzhou Industrial Park and Guanghe Expressway rose the least, each advancing only 0.7 per cent.

They raised a total of 30 billion yuan (US$4.7 billion), according to Jefferies Group.

The Chinese Reits differ from their overseas counterparts as their pool of underlying assets are backed by infrastructure projects rather than commercial properties. Hong Kong’s Link Real Estate Investment Trust, a member of the Hang Seng Index, covers a portfolio of about 130 properties including shopping malls and car parks.

“The rationale for launching infrastructure Reits is to provide a mechanism for local governments to monetise projects and allow funding for new investment, particularly into business parks,” said Sean Darby, a global strategist at Jefferies. “Nevertheless, this approach to securitisation ought to open the window for further liberalisation of assets that can adopt the Reit structure.”

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The launch of the Reits gives a new option to those investing in China’s US$11.7 trillion stock market at a time when yields matter amid a cloudy outlook for the global economy. An index of dividend-rich stocks on the Shanghai exchange has emerged as the best performer among the major gauges tracking Chinese onshore shares this year, as demand for stable returns rises.

First-day rises and declines in China’s Reits are capped at 30 per cent and the band will be limited to 10 per cent thereafter. They can be bought and sold on the exchange like closed-end funds, and at least 90 per cent of their earnings will be distributed as dividend to investors.

The publicly traded Reits play an important role in improving asset allocations on the capital market and supporting the real economy, Chen Fei, head of the treasury department of the China Securities Regulatory Commission, said during the listing ceremony of the asset-backed securities.

The Reits would also diversify the product range, offer financial products with medium returns and boost supply of capital investing in equities, he said.

Hong Kong’s Link Reit has risen 10 per cent this year, more than double the gain on the Hang Seng Index. Its major properties include the Quayside commercial tower, Sau Mau Ping Shopping Centre and TKO Gateway mall in the city.

Additional reporting by Martin Choi

This article appeared in the South China Morning Post print edition as: Steady start for Reits as traders eye yields

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