SFC Shoots Third Arrow to Save Housing Companies Before bailing out the market
In late November 2022, the full text of the SFC's Q&A on capital market support for the stable and healthy development of the real estate market was released. The contents are as follows.
1. Resumption of mergers and acquisitions, restructuring and matching financing of listed companies involved in real estate. Allow eligible real estate enterprises to implement restructuring and listing, and the target of restructuring must be listed companies in the real estate industry. Allow listed companies in the real estate industry to issue shares or pay cash to purchase housing-related assets; when issuing shares to purchase assets, they can raise matching funds; the funds raised will be used for stock housing-related projects and payment of transaction consideration, supplementing working capital, repaying debts, etc., and cannot be used for land acquisition and auction, developing new properties, etc. For listed companies in construction and other industries closely related to real estate, reference is made to the policy for listed companies in the real estate industry to support the integration of "the same industry, upstream and downstream".
2.Resume refinancing of listed real estate enterprises and listed companies involved in real estate. Allow listed real estate enterprises to refinance in a non-public manner, and guide the funds raised to be used for real estate businesses supported by the policy, including real estate projects related to "ensuring the delivery of buildings and people's livelihood", the construction of affordable housing, shantytown renovation or old city renovation and demolition and resettlement housing, as well as supplementary working capital, debt repayment, etc. that meet the requirements of the listed companies' refinancing policy. The company will also be allowed to refinance other listed companies involved in housing. Other listed companies involved in real estate are allowed to refinance and are required to invest the refinancing proceeds in their main business.
3. Adjust and improve the policy on listing of real estate enterprises in overseas markets. In line with the domestic A-share policy, the refinancing of H-share listed companies whose main business is real estate will be resumed; the refinancing of other H-share listed companies whose main business is not real estate will be resumed.
4. Give further play to the role of REITs in revitalising the stock assets of real estate enterprises. Work with relevant parties to increase efforts to promote the regular issuance of REITs for subsidized rental housing, and strive to build a "rent-protected housing segment" in the REITs market. Encourage high-quality real estate enterprises to issue infrastructure REITs based on eligible assets such as warehousing and logistics, industrial parks, etc., or as expansion assets for listed infrastructure REITs.
5. Actively play the role of private equity investment funds. To carry out pilot real estate private investment funds, eligible private equity fund managers are allowed to set up real estate private investment funds to bring in institutional capital to invest in stock residential real estate, commercial real estate and infrastructure, so as to promote real estate enterprises to revitalize operational real estate and explore new development models.
The third arrow
Some believe that this is a real estate bailout policy of epic proportions. But one brokerage analyst said that one can only remain cautiously optimistic about this policy.
Purely from this policy, the impact on real estate listed companies is still significant and can be considered as positive, but one has to remain cautiously optimistic.
The SEC's policy on equity financing for real estate enterprises is in line with expectations, meaning that in addition to credit and bond financing, the policy on equity financing was introduced, which is the third arrow. The advantage of the third arrow over the second arrow is that it will not directly increase the scale of indebtedness of real estate enterprises, while still providing sufficient channels for real estate enterprises to raise funds.
The SEC's policy has six implications.
First, the first arrow, i.e. credit injection, the second arrow, i.e. bond financing, and the third arrow, i.e. equity financing, are already in place.
The three arrows are in place, which fully illustrates that "saving the market first saves the enterprises", which creates a very good space and opportunity for the subsequent financing of real estate enterprises.
Secondly, the policy is clear that the M&A and restructuring of listed companies involved in housing and complementary financing will be resumed.
This is a clear indication of the relaxed policy on the restructuring and listing of real estate enterprises, especially the issuance of shares or payment of cash to purchase housing-related assets. It has better advantages for both the current mine-hit enterprises and high-quality housing enterprises. Among them, the mine-ridden enterprises can take advantage of such restructuring and listing efforts to rationalise their debt relationships, while for the high-quality real estate enterprises, there are opportunities to acquire or control such enterprises.
Thirdly, it is conducive to the resumption of refinancing for listed real estate enterprises and listed companies involved in real estate.
Refinancing is a new form of financing for listed companies after IPO, which is different from the current model similar to the second arrow introduced by the dealers' association. In particular, real estate enterprises have been given a non-public method of financing, which helps them to find investors in a targeted manner and avoid the embarrassment of under-subscription previously faced by public debt issuance.
The direction of investment of such funds is clear, i.e. they are mainly used to guarantee the delivery of buildings, to replenish liquidity and to repay debts. These three tasks are the "three big mountains" that have plagued real estate enterprises this year. In the past, they were supported by credit, bond financing and special funds, while the current refinancing policy can add new sources of funding for such real estate enterprises.
Fourthly, the policy is clear that the policy on the listing of real estate enterprises in overseas markets will be adjusted and improved.
1.This policy actually opens a new window for real estate enterprises to list on the Hong Kong stock market and for existing listed real estate enterprises to refinance.
2. Regardless of whether the main business is real estate or non-real estate enterprises, they can subsequently enjoy the policy bonus effect released by the SFC. This also means that real estate enterprises do not need to worry too much about the proportion of real estate business and institutions, but should take the initiative to promote themselves on the Hong Kong Stock Exchange and other markets, and actively import funds from various international capital markets, so as to promote better development of their enterprises.
Fifth, the policy is clear that the role of REITs in revitalising the stock of assets of real estate enterprises will be further exploited.
1. The innovation of REITs is relatively new this year, but in the past it was more focused on the field of protected rental housing. The policy of REITs is bound to be related to the bailout policy. In other words, in the future, some housing enterprises' projects will be revitalised, and it is necessary to study how to use REITs to revitalise them, and at the same time act as a housing source for subsidised rental housing.
2. Well-used REITs products can help subsequent investors to better access and exit from real estate projects. In addition to traditional bailout funds, special funds and matching funds, the role of REITs in revitalising the stock of housing projects should be fully studied. In particular, investors should be guided to focus on such products, as the innovation of REITs will help to better facilitate the revitalisation of non-performing assets of real estate enterprises, while linking to the current policy direction of subsidised rental housing.
Sixthly, the policy makes it clear that the role of private equity investment funds will be actively played.
1. Private equity investment funds are a source of funds for real estate enterprises to raise funds quickly and support the development of key projects. This clear carry out real estate private investment fund pilot, for such private investment institutions undoubtedly released a better opportunity. At the same time such funds are subsequently allowed to be put into the stock of residential real estate and commercial real estate and other areas, in fact, it is clear that it belongs to the current stock of debt and stock of assets revitalization of important strategies.
2, for the relevant real estate enterprises, to pay close attention to the role of such private equity funds.
In short, this SEC five measures, for the current financing work to better promote, optimize the corporate financing structure, etc. have a positive role.