Application Of REITs Model In Infrastructure Project Financing

Infrastructure construction is a pillar industry that promotes the development of the national economy with foundational,strategic and cutting-edge nature,driving the development of related industries.Therefore,the government has always maintained a high degree of attention to infrastructure construction.After decades of development in the infrastructure field,huge fixed assets have been accumulated and deposited.With the acceleration of urbanization,the call for value-added development by relying on stock assets has become increasingly strong.However,there are still problems such as narrow financing channels and single financing mode in the infrastructure field,and the government and enterprises are burdened with high financial leverage ratios.The infrastructure financing system needs to be further optimized and innovated to revitalize existing assets and reduce leverage ratio.After 2014,Real Estate Investment Trusts(REITs)emerged in our country.This innovative asset-backed securitization financing tool enriches the financing methods of infrastructure projects and relieves the financing pressure of enterprises and governments.REITs originally mean real estate investment trust funds,which have the function of securitizing real estate,thereby opening up the real estate market and financial capital market.REITs can convert weakly liquid real estate into highly liquid securities assets,and then gather idle funds from society by selling securities,so as to meet the project financing requirements and the financial management needs of investors.Because expressway can collect tolls and have the characteristics of stable cash flow and poor liquidity,REITs can also be used to realize financing like real estate assets,which is known as Real Estate Investment Trusts.The "Huatai-Sichuan Long-Na Expressway Asset Supported Special Plan" was issued in December 2019.This special plan belongs to the first infrastructure securities issued by Shenzhen Stock Exchange,and is the third infrastructure REITs product in our country.The project has a high issuance efficiency and the issuance time is less than half of the other ordinary REITs products.In addition,the project financing cost is relatively low and the risks are controllable,which reflects the excellent quality of the project and the good prospects.Judging from the issuance effect,the project was successful.By issuing REITs,Sichuan Expressway Construction and Development Group Co.,Ltd has solved the Long-Na Expressway project financing problem,reduced the financing cost,and also provided another idea for the rapid realization of infrastructure.Therefore,this thesis selects the Long-Na Expressway REITs project as the research project.Using literature research,comparative research and case study methods,this thesis describes the definition of relevant concepts on the application of the REITs model to infrastructure project financing,based on the relevant studies on infrastructure project financing,the REITs model and infrastructure REITs.It mainly introduces the risks and advantages of the REITs model in infrastructure project financing.Combined with the theories of Pecking Order Theory,Principal-agent Theory and Contract Theory,this thesis analyzes the operation mode of Sichuan Long-Na Expressway REITs and introduces the product design in detail through taking Sichuan Long-Na Expressway REITs as a case,as well as the characteristics of the operation model and risk prevention and control measures during the design and implementation of the product,providing reference for original stakeholders who want to issue REITs products with infrastructure.Overall,the application of REITs financing for Sichuan Long-Na Expressway has resulted in timely access to sufficient construction funds,lower borrowing rates and savings in financing costs.However,there are still some shortcomings,such as the adoption of private placements leading to a lack of market liquidity.This thesis believes that the REITs model is suitable for infrastructure financing,and that such an operation model is feasible and replicable.Firstly,the financing scale is determined by predicting the net cash flow,and secondly,the underlying assets are selected to those expressways which have formal charging rights and stable cash flow.At the same time,decision maker should determine the transaction structure and pay attention to effectively isolate risks such as ownership or share transfer.It is precisely because the REITs financing model has innovated the path of infrastructure project financing and promoted the formation of a benign infrastructure financing market.Relevant departments should also improve the corresponding system to make the REITs financing market more active,such as improving tax support policies and giving certain tax incentives.As the China Securities Regulatory Commission and the National Development and Reform Commission jointly and steadily promotes the public offering of infrastructure REITs,which makes up for the lack of liquidity of the private placement method discussed in this thesis.It is believed that REITs will become the main method of infrastructure financing in the future.