The recent release of the "Several Policy Measures for Further Promoting High-Quality Development of Private Investment in Henan Province" by the General Office of the Henan Provincial People's Government proposes exploring a "staged" model for the listing and issuance of infrastructure REITs. This model involves guiding relevant entities to sort and consolidate high-quality assets, first initiating and establishing Pre-REITs for cultivation and incubation, then gradually transitioning to the public REITs stage, ultimately achieving the listing and issuance of infrastructure REITs.
Infrastructure REITs serve as a crucial tool for revitalizing existing assets and broadening financing channels, highly aligned with the reality of China's massive scale of existing infrastructure and strong demand for upgrades. However, converting existing assets into infrastructure REITs requires meeting specific criteria such as project operational history, cash flow stability, distribution yield, and property rights integrity. Many newly built or renovated infrastructure projects, along with public welfare supporting projects, struggle to enter the public market due to issues like insufficient operational data and weak returns.
Consequently, the primary advantage of the "staged" model lies in respecting the objective laws of asset cultivation. By employing phased and tiered product connections, it addresses operational shortcomings and enhances asset qualifications, enabling more existing infrastructure assets to meet the conditions for securitization. This model is being increasingly adopted by various regions. According to incomplete statistics, areas including Beijing, Tianjin, Fujian, Shanghai, Jiangsu, and Anhui have successively introduced similar gradient cultivation measures.
It is suggested that the process should be advanced in three distinct stages, with targeted measures to overcome barriers to the securitization of infrastructure assets.
The first stage focuses on solidifying the operational foundation of the assets. Most infrastructure projects, after completion of construction or renovation, commonly face challenges such as short operational history, insufficient occupancy rates, and incomplete cash flow data, making it difficult to meet public listing entry standards in the short term.
Therefore, this stage requires fully leveraging the cultivation function of Pre-REITs funds. Capital for such funds primarily comes from long-term sources like insurance funds and industrial capital, with investment horizons typically spanning 5 to 7 years. This aligns well with the long-term, gradual cultivation nature of infrastructure asset operations.
The second stage involves building a bridge for securitization. Following initial meticulous cultivation and operational optimization, most projects will gradually establish a traceable, sustainable, and stable cash flow system. However, some projects may still have issues like distribution yields not meeting standards or unresolved minor property rights imperfections.
At this point, transitional operations can be conducted using products like private infrastructure REITs or holding-type ABS. These products are targeted solely at professional institutional investors, offering advantages such as streamlined approval processes, flexible entry criteria, and greater tolerance for distribution yields. Through standardized operation of these transitional products, it is possible to continuously optimize project operations, improve asset management systems, accumulate recognition from capital market institutions, and address compliance gaps, laying the groundwork for subsequent public REITs listings.
The third stage aims to establish a virtuous cycle of "asset revitalization – capital recycling – new investment." Once a project's core indicators fully meet requirements, the application process for a public REITs listing can be initiated. Through the issuance and listing of public REITs, the original rights holders can quickly recapture capital tied up in existing projects. This recycled capital can then be continuously reinvested into new project construction, such as urban renewal, new infrastructure, and public welfare facilities, ultimately achieving sustainable development in infrastructure investment and financing.
It is important to clarify that the smooth progression of this entire process relies on two key supports. On one hand, it is essential to fully leverage the amplifying and risk-mitigation functions of government-guided funds to address the funding gap created by the long incubation period and initially weak returns of Pre-REITs projects, thereby broadly mobilizing diverse social capital to deeply participate in the early-stage cultivation of projects. On the other hand, integrating low-return public welfare infrastructure assets with high-return operational assets into the same underlying product pool can help unblock the securitization pathway for public welfare assets. This approach maintains their public service attributes while meeting the market-driven return requirements for issuance.