As a latecomer, Yinhua Fund will be the first REIT to settle for water conservancy facilities, an area that is still in the blank of the market. Behind the new path is a layout that has been brewing for more than three years.
After more than three years, from pilot to normalization, public REITs are accelerating their launch.
According to Wind statistics, as of October 16, a total of 47 public REITs have been established, with a total issuance scale of 136.9 billion yuan. Since the beginning of this year, the issuance of REITs has accelerated significantly, with 17 of them completed fundraising in the first three quarters alone, the largest number in the past. (Data source: Wind, 2024.10.16)
While the number of products has increased, the types of underlying assets have also expanded to 13 categories, covering transportation, energy, municipal, ecological and environmental protection, warehousing and logistics, rental housing, water conservancy facilities, cultural tourism, etc. (Source: National Development and Reform Commission, as of August 1, 2024).
The faster and faster new speed makes the competition in this blue ocean tend to be fierce. Quality projects are always a scarce asset. This is a great test of the fund manager's vision and investment management ability.
As a latecomer, Yinhua Fund will be the first REIT to settle for water conservancy facilities, an area that is still in the blank of the market. Behind the new path is a layout that has been brewing for more than three years.
As early as June 2021, before the issuance of the "No. 958" document - "Notice on Further Improving the Pilot Work of Real Estate Investment Trusts (REITs) in the Infrastructure Sector", Yinhua Fund had already started to prepare for this business, building a team and promoting the project at the same time.
It is reported that in Circular 958, the scope of the pilot industry of public REITs is clearly defined as ten major areas, including two major areas of exploration. Water conservancy facilities are one of the two major areas of exploration, and they are also the areas that Yinhua Fund initially targeted. After doing a lot of preliminary research, project communication, and resource integration, Yinhua Fund reported to Yinhua Shaoxing Raw Water Conservancy REIT in June this year, and obtained the approval in September.
According to the offering announcement, Yinhua Shaoxing Raw Water Conservancy REIT will be launched on October 21. This is not only the first public REIT for water conservancy facilities in China, but also the first REIT issued by Yinhua Fund.
In the offline inquiry stage, the fund received a total of 186 placement quotation information managed by 69 offline investors, and the total number of shares to be subscribed was 1,378,400,000, which was 106.07 times of the initial offline offering shares, setting a new record for the offline inquiry subscription multiple of public REITs this year. (For the initial offline subscription multiple and subscription price, please refer to the "Yinhua Shaoxing Raw Water Conservancy Closed-end Infrastructure Securities Investment Fund Fund Share Offering Announcement", according to statistics and the fund share offering announcement, 2024.1.1-2024.10.16, a total of 19 public REITs have completed the inquiry stage in the whole market, At present, the total number of shares to be subscribed by all the placing objects of Yinhua Shaoxing Raw Water Conservancy REIT is 106.07 times the number of shares offered offline, setting a new high for the initial offline subscription multiple of public REITs since 2024. ）
REITs are different from other public offerings, it is a kind of "case-by-case" business, even in the same field, the underlying assets may be very different, and "specific cases, specific analysis" are required. The success of a REIT may depend on two factors: first, the quality of the underlying assets, and second, whether the team building is in place.
The birth of the first water conservancy REIT
Choosing water conservancy facilities as the underlying assets of the first REIT, the REITs team of Yinhua Fund not only considers the macro level, but also focuses on the investment value of the target itself.
From the perspective of asset characteristics, water conservancy facilities have very strict requirements for site selection and construction, and form the characteristics of natural monopoly on the supply side, so the stability of business expectations is relatively strong. The water conservancy industry covers a wide range, some are mainly water supply and power generation, some are mainly irrigation, some are mainly flood control, and some combine water conservancy and tourism.
In this regard, the REITs team of Yinhua Fund focuses on assets with income characteristics, such as water supply, power generation and other water conservancy facilities that can generate stable cash flow.
From the demand side, the demand for domestic water is rigid, and the infrastructure operation of water supply is less or less affected by short-term economic fluctuations. According to data from the Development Research Center of the Ministry of Water Resources, the proportion of water expenditure to disposable income in 36 key cities in mainland China in 2020 was between 0.21%~0.67%. Under normal circumstances, the per capita water expenditure of urban residents accounts for less than 1.5%~3% of disposable income. (Data source: Development Research Center of the Ministry of Water Resources, as of 2020.12.32, reference: "Talking about the Domestic Water Price of Urban Residents in the Mainland", 2022.10.18)
In addition to macro-level considerations, the quality of the subject matter itself is more important.
The underlying target of Yinhua Shaoxing Raw Water Conservancy REIT is the Tangpu Reservoir Project, and the three original owners are all local state-owned enterprises. According to public reports, Shaoxing City plans to build Yinhua Shaoxing Raw Water Conservancy REIT into the only water-related REITs platform at the municipal level. (Source: Shaoxing SASAC The first single of water conservancy in the country!) Shaoxing Raw Water REIT Officially Approved (sx.gov.cn))
"Most of the urban construction is based on water to determine the city and the people with water." Yang Mo, director of the infrastructure investment department of Yinhua Fund and the proposed fund manager of the product, shared several reasons for choosing Tangpu Reservoir.
"First, the operation of the project is relatively stable, since the Tangpu Reservoir was completed in 2001 and has been put into use for more than 20 years, the operation has been very stable, and it is a mature project. This provides us with an operational guarantee for the issuance and listing.
Second, the project is located in the developed area of the Yangtze River Delta. Among the 41 cities in the Yangtze River Delta, Shaoxing ranks third in GDP growth, with dense population, developed industries, and a high demand for high-quality water.
Third, the Tangpu Reservoir implements professional and standardized management, using unmanned aerial vehicles (UAVs) and Internet of Things application platforms, which can basically cover the supervision of the entire reservoir area and provide relatively controllable operation and management support.
Fourth, with the deployment of the CPC Central Committee and the State Council on deepening the reform of water supply prices for water conservancy projects, the formation mechanism of water supply prices for water conservancy projects will continue to improve, and the future growth of water prices in Tangpu Reservoir has room for imagination. ”
Enter the game with "deep" and pursue high-quality products
If public REITs are compared to a ship going to sea, high-quality underlying assets are like anchors to stabilize the overall situation, and the appropriate management team is the rudder to control the direction.
The issuance scale of Yinhua Shaoxing Raw Water Conservancy REIT is not large, only less than 1.7 billion yuan, but it is equipped with 4 fund managers, composed of "2 investment managers + 2 operation managers", which reflects Yinhua's attention and determination in REITs.
The investment managers are Yang Mo and Wang Peng, who have rich experience in the field of REITs and ABS. The operation managers are Lin Hui and Xu Liang, the former has been deeply involved in the water industry at home and abroad for more than ten years, and the latter is a participant and witness in the whole process of planning, preparation, declaration and issuance of this project.
In addition to the high allocation of the investment and operation team of Yinhua Shaoxing Raw Water Conservancy REIT, Yinhua Fund also has a professional industry research team and credit research team, which will also provide research support for the REITs business. In addition, Yinhua Capital, a subsidiary, acted as the manager of the asset-backed plan under REITs. Gather multiple resources and work together.
Whether it is looking for potential targets in the early stage, promoting projects, or issuing products and daily operations in the later stage, the Yinhua Fund REITs team has been involved from the beginning. Yang Mo said that fund managers, as the "first responsible persons" of the project, play a vital role in public REITs. Yinhua Fund adheres to the main responsibility of the fund manager, implements the duty of diligence and responsibility, hires brokers, lawyers, auditors, tax and other intermediaries to provide support in the early stage of the project, and the fund manager itself maintains in-depth participation and control of the project in the whole process.
At the level of daily operation of infrastructure, the Yinhua REITs team hired a professional operation management agency, entrusted them to carry out some daily operation, maintenance, repair and professional communication with the competent authorities, and formulated a detailed and comprehensive operation management agreement, which made detailed constraints on the responsibilities, performance appraisal and incentive methods of the operation management agency.
In addition, fund managers have many hands-on aspects, including budget approval, company licenses, maintenance of files, approval and use of seals, as well as information disclosure of public funds, annual asset evaluation and cash flow allocation.
"In the REITs business, we have always held ourselves to a high standard." Yang Mo bluntly said that this is related to the positioning of the team, Yinhua Fund's goal is to do high-quality projects, build a high-quality team, "in the exploration of emerging fields, we also hope to be industry pioneers."
Multi-faceted response to extreme weather
One uncontrollable risk for water conservancy projects is extreme weather.
According to the fund's prospectus, in 2023, due to the rare extreme dry weather, the actual water supply of the Tangpu reservoir plummeted, from 344 million cubic meters in the previous year to 258 million cubic meters.
"This is the third lowest amount of water in the storage since 1961. From a long-term return perspective, we are not concerned about such extreme cases. According to the assessment of professional institutions, although the annual water inflow fluctuates, if the time is extended, the overall water volume is stable and controllable."
According to the prospectus, when making future cash flow forecasts, the extremes of 2023 are also included in historical data. Wang Peng said that this is out of more cautious protection for investors.
In response to extreme weather conditions, the Yinhua REITs team has formulated some countermeasures. For example, together with the transportation management agency, do a good job of early warning measures in advance, analyze and disclose in a timely manner, communicate with regulatory departments and meteorological departments in a timely manner, determine response plans, and minimize adverse impacts.
Lin Hui said that in daily operations, the team will closely track the weather situation. When there is an extreme dry weather, artificial rainfall will be carried out in conjunction with the meteorological department to mitigate the impact of dry weather. At the same time, through daily maintenance, siltation is reduced, flood control scheduling is refined, and the water storage capacity of the reservoir is maximized as much as possible. This is already a relatively mature mechanism for the Tangpu Reservoir.
"In addition to coping with the impact of extreme weather through these proactive measures, Yinhua Fund also followed regulatory requirements and purchased property all risks, machinery damage insurance and public liability insurance for Yinhua Shaoxing Raw Water Conservancy REIT, of which the property all risk insurance amount is about 1.66 billion yuan, which can fully cover the underlying assets of Yinhua Shaoxing Raw Water Conservancy REIT."
Risk Warning:
Investment is risky, investors should carefully read the fund's prospectus and other offering documents when purchasing funds.
More than 80% of the fund assets of the infrastructure fund are invested in infrastructure asset-backed securities and hold all their shares, and the fund holds all the equity of the infrastructure project company through the infrastructure asset-backed securities, and obtains full ownership or operation rights of the infrastructure project through the asset-backed securities and project companies. The main purpose of the infrastructure fund is to obtain stable cash flows such as rents and fees for infrastructure projects, and the income distribution ratio shall not be less than 90% of the annual amount available for distribution of the combined fund. Investors should fully understand the investment risks of infrastructure funds and the risk factors disclosed in this prospectus and make prudent investment decisions.
The main risks of investing in the Fund are: 1. various risk factors related to infrastructure funds, including but not limited to concentration investment risk, fund price fluctuation risk, liquidity risk, investment risk and innovation risk of new types of funds, management risk, tax and other policy adjustment risks, liquidity risk of asset-backed securities investment, performance risk of intermediaries, etc.; 2. Various risk factors related to the special plan, including but not limited to the risk of early termination of special purpose vehicles such as the special plan, the risk of operation of the special plan and the risk of account management, the risk of due diligence performance of the asset-backed securities manager and the asset-backed securities custodian, the risk of the asset-backed securities manager losing the qualification of asset management business, and the risk of changes in the legal and policy environment, etc.; 3. Various risk factors related to infrastructure projects, including but not limited to policy risks, market risks, renewal risks of "Water Intake Permits", assessment risks, asset maintenance and capital expenditure risks, cash flow forecast risks, cash flow fluctuation risks caused by shareholder borrowings, performance risks of operation and management institutions, accidents, safety production accidents and force majeure risks caused by infrastructure projects, risks of the net value of the fund decreasing year by year or even tending to zero, and the expiration of the operation period of infrastructure projects. The risks associated with the preferential transfer of the equity of the project company by the original equity holder or its designated affiliates, the risk of adjusting the sales price of raw water of infrastructure projects, the risk of renewal of raw water sales contracts, the risk of disposal, the risk of project entrustment arrangement, the risk of fluctuation of water supply of infrastructure projects, the risk of related party transactions, the risk of impairment of long-term assets during the duration of the fund, the risk of intra-industry competition and conflict of interest, the risk of future flood control and irrigation of reservoirs, and the risk of administrative penalties for water supply of infrastructure projects that exceed the permitted scale of water withdrawal, the risk of dredging projects and sand-control projects in the future, the risk of shared assets of infrastructure projects, etc.; 4. Various risk factors related to the transaction arrangement, including but not limited to the risk that the relevant transaction cannot be completed, the risk that the requirements or decisions of the infrastructure fund cannot be transmitted in a timely and effective manner, and the risk of defects in the design of the transaction structure and the setting of terms; 5. Other relevant risk factors, including but not limited to the risk of failure of the offering, the risk of suspension or termination of listing, the risk of compliance and operation, the risk of securities market, etc.
For details, please refer to the Prospectus of the Fund.
Investment is risky and should be cautious. A publicly offered securities investment fund (hereinafter referred to as a "fund") is a long-term investment tool, and its main function is to diversify investments and reduce the individual risks brought about by investing in a single security. Unlike financial instruments such as bank savings that can provide fixed income expectations, when you buy fund products, you may not only share the income generated by the fund's investment according to your holdings, but also bear the losses caused by the fund's investment. Before you make an investment decision, please:
Carefully read the legal documents of the fund such as the fund contract, the fund prospectus and the fund product key facts statement and this risk disclosure to fully understand the risks and returns of the fund
Features and product features, carefully consider the various risk factors existing in the fund, and according to its own investment objectives, investment horizon, investment experience, asset status, etc
Factors fully consider their own risk tolerance, on the basis of understanding the product situation and sales suitability opinions, rational judgment and prudent investment decisions. wen
The views in this document only represent the views of the fund company at the time of writing, and the fund company has the right to make adjustments
Third party views do not represent the position of the Fund, and the Fund House makes no representations or warranties, direct or implied, as to their accuracy or completeness.
In accordance with relevant laws and regulations, Yinhua Fund Management Co., Ltd. makes the following risk disclosures:
1. According to the different investment objects, funds are divided into different categories, such as stock funds, mixed funds, bond funds, money market funds, funds of funds, and commodity funds
If you invest in different types of funds, you will have different return expectations and will also bear different degrees of risk. In general, the higher the expected return of the fund, the more you
The greater the risk.
2. The fund may face various risks in the process of investment and operation, including market risks, as well as the fund's own management risks, technical risks and compliance risks.
Significant redemption risk is a risk unique to open-end funds, i.e., when the net redemption requests of a single open-day fund exceed a certain percentage of the total share of the fund (open-ended
10% for funds and 20% for regular open funds, except for special products stipulated by the China Securities Regulatory Commission), you may not be able to redeem all the applications in time
Payment of fund shares, or your redemption may be deferred.
3. You should fully understand the difference between regular fixed investment and lump sum deposit and withdrawal of funds. Regular investment is to guide investors to make long-term investments, on average
Investment cost is a simple and easy way to invest, but it does not avoid the inherent risks of fund investment, does not guarantee investors to obtain returns, and is not a substitute
The equivalent of saving.
4. Risk disclosure of special types of products: Public REITs are infrastructure funds, most of the assets are invested in infrastructure projects, with equity attributes, affected by factors such as economic environment, operation and management, the market value and cash flow of infrastructure projects may change, which may cause the price of the fund to fluctuate, and there is even a risk that the infrastructure project will suffer large losses due to extreme events (such as earthquakes, typhoons, etc.) and affect the price of the fund. Public REITs invest in fixed income assets outside of infrastructure and may be exposed to credit risk, interest rate risk, yield curve risk, reinvestment risk and purchasing power risk. Public RETs are operated in a closed manner, and can only be traded in the secondary market without opening subscription and redemption, which has the risk of insufficient liquidity. The Fund has other risks related to public funds and risks related to infrastructure projects, which are detailed in the prospectus and other legal documents. For information about the fund's investment strategy, investment scope, fund manager, etc., please go to the information disclosure section of the official website of Yinhua Fund.
5. The fund manager undertakes to manage and use the fund assets in good faith, diligence and responsibility, but does not guarantee that the fund will be profitable, nor does it guarantee the minimum return.
Past performance of the Fund and its net worth are not indicative of its future performance, and the performance of other funds managed by the Fund Manager does not constitute a negative impact on the performance of the Fund
Guarantee of performance. Yinhua Fund Management Co., Ltd. reminds you of the principle of "buyer's responsibility" in fund investment
The investment risk arising from changes in the net value of the fund is at your own risk. Fund managers, fund custodians, fund distribution agencies and related institutions shall not return on the investment income of the fund
Make any promises or warranties.
6. The Fund shall be raised by Yinhua Fund in accordance with relevant laws, regulations and agreements, and shall be approved by the China Securities Regulatory Commission (hereinafter referred to as the "China Securities Regulatory Commission")
License Registration. The Fund's fund contract, fund prospectus and fund product key facts statement have been approved through the CSRC's fund electronic disclosure website
[http://eid.csrc.gov.cn/fund/] and the fund manager's website [www.yhfund.com.cn] made public disclosures. China Securities Regulatory Commission (CSRC) on the Fund
does not indicate that it has made a substantive judgment or guarantee on the investment value, market prospects and returns of the Fund, nor does it indicate that there is no risk in investing in the Fund.
This product is issued and managed by Yinhua Fund, and the agency does not assume the responsibility for product investment, redemption and risk management.
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