#Chinese Legal Service #Chinese Lawyer #PRC lawyer #PRC Legal Service
In April 2020, the China Securities Regulatory Commission (CSRC) and the National Development and Reform Commission (NDRC) jointly issued the Notice on Promoting the Pilot Program of Real Estate Investment Trusts (REITs) in the Infrastructure Field (hereinafter “Notice No. 40”). Since the official launch of the infrastructure REITs pilot program, the relevant regulations have been continuously improved and the issuance scale of REITs in the infrastructure field has been steadily growing.
Under this circumstance, the NDRC publicly issued the Notice on Comprehensively Promoting the Normalized Issuance of Real Estate Investment Trusts (REITs) Program in the Infrastructure Field (hereinafter “Notice No. 1014”) on July 26, 2024. This significant notification is designed to accelerate the flow of capital into infrastructure investments, improve asset liquidity, and further develop China’s capital markets while supporting the country’s infrastructure development.
Compared with the documents issued in the pilot phase such as Notice No. 40, Notice No. 1014 has made plenty of requirements for promoting the normalized issuance of REITs in terms of broadening the scope of the declared industries, improving the flexibility of the use of recycled funds, and improving the quality and efficiency of the project declaration procedure.
- Broadening the Scope of Declared Industries
According to the policies issued in the pilot phase, limited categories of pilot industries can be declared for REITs projects, such as department stores, shopping centers, farmers’ markets, and community businesses.
However, incorporating the experience gained during the pilot phase, Notice No. 1014 expands the scope of the industry of declarable projects to 12 categories and new types of assets such as coal-fired power generation, market-oriented rental housing, 4A scenic spots, and senior living projects are added.
2. Improving the flexibility of the use of recovered funds
Previously, the Notice on Further Improving the Pilot Program of Real Estate Investment Trusts (REITs) in the Infrastructure Field required that 90% of the net recovered funds shall be used for projects under construction or new projects with mature preliminary work. What’s more, The Notice on Standardized and Efficient Application for and Recommendation of Real Estate Investment Trust (REITs) Projects in the Infrastructure Field required that no more than 30% of the net recovered funds could be used for projects to revitalize stock assets, and that no more than 10% of the net recovered funds could be used for the withdrawal of minority shareholders or supplementing the liquidity of the promoter of a listed infrastructure project.
As we can see, there are a lot of limitations on the use of the recovered funds. In view of this, Notice No. 1014 removes the 30% cap on the proportion used for stock asset acquisition and raises the cap on the proportion used to supplement liquidity from 10% to 15%, increasing the flexibility of the promoters in the use of recovered funds.
3. Simplifying the declaration and recommendation procedures
First of all, Notice No. 1014 clarifies NDRC’s authority to review the REITs program. Under Notice No. 1014, the NDRC will no longer review the internal resolutions of promoters, project companies, and other entities for asset transfer, spin-off, and listing, as well as the financing restrictions agreed upon in the promoters’ guarantee contracts.
In addition, Notice No. 1014 also takes a lot of measures hoping to simplify the filing procedures, such as canceling the pre-counseling session, clarifying the time limit requirements of each session, and so on. By doing so, Notice No. 1014 will greatly increase the enthusiasm of potential to issue REITs with stock assets.
In conclusion, by implementing Notice No. 1014, the NDRC aims to further promote the normalized issuance of REITs in the infrastructure field, enhance resource allocation, and strengthen the functions and efficiency of capital markets, all while supporting the long-term development of the Chinese economy. Notice No. 1014 reflects the Chinese government’s commitment to utilizing innovative financial instruments to support real economic development. It also provides a clear roadmap for the sustainable and healthy growth of the REITs market in China, helping to channel capital into critical infrastructure projects across the country.
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