(Repeat for additional subscribers)
April 22 (The following statement was released by the rating agency)
Fitch Ratings says the financial product to be
issued by Citic Securities, backed by rental income from office buildings, is
more similar to asset-backed securities (ABS) than a real estate investment
Various media reported recently that Citic Securities is ready to issue the
first REIT in China. Yet, there are a number of differences between the Citic
product and a typical REIT according to international standards. Firstly, the
Citic product will be traded privately while a REIT is traded publicly with good
liquidity. Secondly, the Citic product offers predetermined yields to investors
from two tranches, instead of delivering at least 90% of distributable income,
which is a feature commonly seen in REITs. Thirdly, the product has a finite
time horizon and may be subject to refinancing risk at maturity.
The proposed CNY5.2bn product has two tranches. The CNY3.65bn tranche A yields
7%-9% and the CNY1.56bn tranche B offers a yield of 12%-42%, according to IFR
Asia. The two tranches are backed by rental payments from two Citic-owned office
buildings situated in prime business districts in Beijing and Shenzhen. The
product, which has a term of three to five years, is being offered to
institutional investors on a private basis and will not be traded publicly in
the secondary market.
The issuance of Citic's product will take China one step closer to the
liberalization of the country's REIT framework. However, Fitch does not expect
this to lead to any major breakthrough in the near term. Regulatory and tax
issues still remain the key hurdles.