As many policies are implemented, asset securitization of public-private partnership (PPP) projects is expected to see rapid expansion. According to document No.55 recently released by the Ministry of Finance (MOF), the People’s Bank of China (PBOC) and China Securities Regulatory Commission (CSRC), the qualified PPP projects can seek for asset securitization when under construction. The document proposes to boost development of real estate investment trusts (REITs) and encourages various capitals to invest in products of asset securitization of PPP projects. In comparison with the policy released by the National Development and Reform Commission (NDRC) and the CSRC at the end of last year, document NO.55 is more detailed and loose.
Industry insiders indicated that the NDRC and MOF manage different fields and have different focuses on the PPP projects. However, with the development of asset securitization business, it is expected that the two departments tend to be uniform in some common problems in the future. Financing channels of PPP projects will be further broadened and improved with the policy support of many ministries and commissions.
By now, under the policy framework of the NDRC and CSRC, the NDRC has recommended two batches of 17 products of asset securitization of PPP projects to the CSRC, 4 of which have been officially issued at the Shanghai and Shenzhen stock exchanges with amount of 3.554 billion yuan. It is learnt by the reporter with Economic Information Daily that another 5 products are predicted to be issued at exchanges soon. With implementation of the document No.55, products of asset securitization of PPP projects will be available in interbank market. Market participants predict that according to the rule that expenditure for PPP projects from the budget should not be higher than 10 percent of public expenditure budget, high-quality investment in PPP projects, which is included in government’s budget management, is predicted to be about 17.6 trillion yuan in next 10 years. Asset securitization of PPP projects boasts huge market potential.
Introduction of the document No.55 got a lot of attention from the market. An interbank market participant said to the reporter that feature of the document No.55 distinguishing it from those previously released by the NDRC and MOF is that it puts forward steadily advancing asset securitization of PPP projects by sort management of issuers, which makes standards for asset securitization of PPP projects more detailed and flexible. More importantly, it proposes to positively explore future usufruct of project companies agreed in PPP contracts when the projects are still developed, issue products of asset securitization and further broaden project financing channels. But the previous policy required that companies can apply for asset securitization of projects via green passage after the projects have been operated for two years.
Guo Yonggang, general manager of structure financing department with Golden Credit Rating International Co., Ltd., remarked that under the background that after the PPP projects have been operated for over two years and form relatively stable cash flow, financing demand may not be sufficient. At this time, asset securitization of PPP projects won’t help solve capital demand during construction period a lot. An industry insider familiar with asset securitization of PPP projects said that in practice, PPP projects have different degree of demands for capitals at early stage, middle and later periods. Especially in early stage, many projects have strong demand for short-term capitals, but antedisplacement of financing stages can meet this demand of project companies.
Guo added that duration of asset securitization products of PPP projects is longer. For instance, duration of the four products which have been already issued lasts for 6 years, 14 years, 15 years and 18 years respectively. However, the duration which can be accepted by market investors is usually within five years. Therefore, in order to lengthen financing maturity, most of them adopt regular repurchase and nominal interest rate adjustment mechanism.
To tackle the problem of long investment maturity, the document No.55 proposes to boost development of real estate investment trusts (REITs) and encourages various capitals to invest in products of asset securitization of PPP projects. “It is noteworthy that both the NDRC and MOF come up with pushing forward REITs and boosting asset securitization of PPP projects. Introduction of REITs will improve liquidity of asset securitization products to realize public collection of products. This will become important development trend of asset securitization of PPP projects in the future. India, Japan and other countries vigorously promote infrastructure in recent years, which enlightens China,” said the above-mentioned industry insider.
Sun Binbin from TF Securities stated in a report that as the PPP projects which started earlier are put into operation gradually, PPP projects plus REITs projects are expected to be launched as soon as possible.
Industry insiders predict that the policy, which is explicit and loose, will further stimulate potential financing demand of PPP projects and facilitate implementation of these projects. Yan Mingjian, analyst with CIB Research, indicated that according to statistics from the MOF, the number of PPP projects recorded in the PPP project library of comprehensive information platform reached 12,287 by the end of March. Investment amount of these projects totaled 14.6 trillion yuan. 1,729 projects, or 14.07 percent of total projects, with investment amount of 2.9 trillion yuan are being implemented. Asset securitization, as one of the important financing means of PPP field, is able to vitalize remnant assets and accelerate withdrawal of capitals and help improve PPP projects’ attractiveness to social capitals.
“Capitals investing in projects depends on two factors, namely return on investment (RIO) and investment cycle. Even though RIO of a project is very high, capitals won’t invest in it if investment cycle is too long. However, asset securitization creates conditions for social capitals to recover investment in advance,” said the above-mentioned industry insider who is familiar with asset securitization of PPP projects.
Noticeably, the document No.55 stresses that it is not allowed to change controlling shareholders’ actual controlling right and project operation responsibility on PPP project companies, which will influence continuity and stability of public service supply. “This actually formulates a rule for the withdrawal of financial investors of asset securitization of PPP projects,” said the above industry insider.
(By Vanessa)
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