SZSE Launched the First Long-term Rental Apartment Mortgage Loan Asset-backed Securities in China

date: 2017-12-6

China Merchants Chuangrong - China Merchants Shekou Long-term Rental Apartment Asset-backed Special Plan (hereinafter referred to as ‘China Merchants Shekou Special Plan’) was approved by Shenzhen Stock Exchange (‘SZSE’) on 1 December, 2017, and would be issued soon. It is the first long-term rental apartment mortgage loan asset-backed securities (hereinafter referred to as ‘CMBS’) in China, and also the housing rental asset-backed securities with the largest shelf offering size. Its success in receiving the approval is not only a phased achievement of serving housing rental market development by asset-backed securities, but also another attempt of innovation in long-term rental apartments after China Young Professionals Apartments, the first housing rental real estate investment trusts (‘REITs’). It means that quality housing rental enterprises may efficiently expand their financing channel by shelf offering of CMBS, which has a very positive demonstration effect.


With China Merchants Securities Co., Ltd. as the manager and the total offering size of CNY 6 billion via shelf offering, the manager of China Merchants Shekou Special Plan may select the underlying property assets within two years after the issue of no-action letter according to agreed standards and issue CMBS in several tranches at the right time, which greatly increases the offering efficiency and decreases the financing cost for enterprises. According to the special plan, the financier is China Merchants Shekou Industrial Zone Holdings Co., Ltd. (hereinafter referred to as ‘China Merchants Shekou’), the basic asset is the trust loan under a single fund trust, and the primary fund source of repayment is the rental income cash flow from the underlying long-term rental apartments. The first tranche asset-backed securities of China Merchants Shekou Special Plan takes ‘Sihai Community’ located at Shekou Free Trade Zone, Qianhai, Shenzhen as underlying assets, with the offering size of CNY 2 billion. China Merchants Shekou will make up the balance for the special plan, and provide guarantee for the trust loan by mortgaging all the underlying property assets of ‘Sihai Community’ held by its subsidiaries, so as to win AAA credit rating for the priority asset-backed securities.


Promotion of rental housing construction and cultivation and development of housing rental market are the main contents in accelerating the structural reform of supply side on real estate market and building the housing system by simultaneous development of house rental and purchase. Recently, relevant policies will be issued to accelerate the housing rental market, explicitly encourage the development of large state-owned and private housing rental enterprises, and reinforce the financial support and expand direct financing channel for them. As the leader in the field of long-term rental apartments, China Merchants Shekou owns a lot of low-cost long-term rental apartments in stock. The offering of CMBS helps enterprises to activate stock assets and retain their ownership of long-term rental apartments, open up the complete business chain of ‘investment, construction, operation and exit’ for them, and provide an effective channel for the transformation and upgrading of traditional leasing industry.


In the next step, SZSE will be guided by the thought on socialism with Chinese Characteristics for a new era and national policies to serve the real economy, increase the ratio of direct financing, encourage and support quality housing rental enterprises to issue bonds, asset-backed securities and REITs, and actually serve the housing system by simultaneous development of house rental and purchase.