China Securities Regulatory Commission issued “Opinions on Capital Market Support for Building a New Model of Real Estate Development”

The Zhitong Finance App learned that on August 28, in order to implement the major decisions and arrangements of the Party Central Committee and the State Council to accelerate the construction of a new model of real estate development and promote high-quality real estate development, accelerate the construction of a capital market service system that matches the new model of real estate development, serve the improvement of housing quality and enterprise transformation and development, and promote a virtuous cycle of finance and real estate, the China Securities Regulatory Commission formulated “Opinions on Capital Market Support for the Construction of a New Model of Real Estate Development”. The “Opinions” consist of 4 parts and 12 opinions, which mainly include the following content: 1 is the general requirements. Reform financing methods for real estate development, promote a shift from relying on entity credit to based on project conditions, and meet the reasonable financing needs of real estate development enterprises with different forms of ownership. Strengthen real estate sector access, information disclosure, and fund supervision, steadily prevent and resolve risks related to real estate, and promote high-quality real estate development.

The second is to support reasonable financing. Support listed real estate development companies to refinance and comprehensively use tools such as issuing shares, targeted convertible bonds, and cash to acquire real estate-related assets. Strengthen bond financing support, support real estate development companies to issue corporate bonds for real estate projects that meet policy requirements, and encourage the issuance of commercial real estate mortgage-backed securities (CMBS) and real estate asset-backed securities (ABS). Support the issuance of real estate investment trusts (REITs) or the expansion of assets as REITs based on eligible projects such as rental housing and urban renewal, and steadily promote the development of commercial real estate REITs. Support private equity fund managers who meet the requirements to set up real estate private equity investment funds.

The third is to optimize supervision. Optimize the entry and supervision of securities issued by real estate development companies, highlight the characteristics of “project-based” financing; optimize information disclosure supervision, focusing on the implementation of accounting standards; strictly prevent and crack down on illegal acts such as fraudulent issuance by issuers, falsification of information disclosure, and misappropriation of funds raised, and increase punishment for systematic and gang fraud.

Fourth, prevent and mitigate risks. Implement the “Four Early Days” requirements, establish and improve a mechanism for pre-investigation and prediction of capital market-related risks in the real estate sector, and strengthen the linkage of equity and debt-based supervision. Supervise the delisting of listed real estate development companies in a smooth and orderly manner, and clear diversified delisting channels. Cooperate with local governments to promote the settlement of real estate default bonds and enrich diversified real estate bond risk management mechanisms.

The full text is as follows:

China Securities Regulatory Commission issued “Opinions on Capital Market Support for Building a New Model of Real Estate Development”

In order to implement the major decisions and arrangements of the Party Central Committee and the State Council to accelerate the construction of a new model of real estate development, promote high-quality real estate development, accelerate the construction of a capital market service system that matches the new model of real estate development, serve the improvement of housing quality and enterprise transformation and development, and promote a virtuous cycle of finance and real estate, the China Securities Regulatory Commission formulated “Opinions on Capital Market Support for the Construction of a New Model of Real Estate Development” (hereinafter referred to as “Opinions”).

The “Opinions” consist of 4 parts and 12 opinions, which mainly include the following content: 1 is the general requirements. Reform financing methods for real estate development, promote a shift from relying on entity credit to based on project conditions, and meet the reasonable financing needs of real estate development enterprises with different forms of ownership. Strengthen real estate sector access, information disclosure, and fund supervision, steadily prevent and resolve risks related to real estate, and promote high-quality real estate development. The second is to support reasonable financing. Support listed real estate development companies to refinance and comprehensively use tools such as issuing shares, targeted convertible bonds, and cash to acquire real estate-related assets. Strengthen bond financing support, support real estate development companies to issue corporate bonds for real estate projects that meet policy requirements, and encourage the issuance of commercial real estate mortgage-backed securities (CMBS) and real estate asset-backed securities (ABS). Support the issuance of real estate investment trusts (REITs) or the expansion of assets as REITs based on eligible projects such as rental housing and urban renewal, and steadily promote the development of commercial real estate REITs. Support private equity fund managers who meet the requirements to set up real estate private equity investment funds. The third is to optimize supervision. Optimize the entry and supervision of securities issued by real estate development companies, highlight the characteristics of “project-based” financing; optimize information disclosure supervision, focusing on the implementation of accounting standards; strictly prevent and crack down on illegal acts such as fraudulent issuance by issuers, falsification of information disclosure, and misappropriation of funds raised, and increase punishment for systematic and gang fraud. Fourth, prevent and mitigate risks. Implement the “Four Early Days” requirements, establish and improve a mechanism for pre-investigation and prediction of capital market-related risks in the real estate sector, and strengthen the linkage of equity and debt-based supervision. Supervise the delisting of listed real estate development companies in a smooth and orderly manner, and clear diversified delisting channels. Cooperate with local governments to promote the settlement of real estate default bonds and enrich diversified real estate bond risk management mechanisms.

In the next step, the China Securities Regulatory Commission will organize and implement the “Opinions”, adhere to equal emphasis on development and regulation, give full play to the role of capital market functions, actively support real estate development enterprises to finance real estate projects that meet policy requirements, optimize the supervision of real estate securities issuers, focus on preventing and mitigating risks involving the real estate sector, accelerate the construction of a new model of real estate development with better services, and promote the high-quality development of the real estate industry.

Opinions on capital market support for building a new model of real estate development

All agencies, exchanges, subordinate units, associations, departments and bureaus of the China Securities Regulatory Commission:

This opinion is formulated to implement the important decisions and arrangements of the Party Central Committee and the State Council to accelerate the construction of a new model of real estate development and promote high-quality real estate development, reform and improve the real estate financing system, accelerate the construction of a capital market service system that matches the new model of real estate development, serve the improvement of housing quality and enterprise transformation and development, and promote a virtuous cycle of finance and real estate.

I. General Requirements

Guided by Xi Jinping's ideology of socialism with Chinese characteristics in the new era, comprehensively implement the spirit of the 20th National Congress and the Second, Third, and Fourth Plenary Sessions of the 20th CPC Central Committee, implement the requirements of the Central Economic Work Conference and the Central Finance Work Conference, completely, accurately and comprehensively implement the new development concept, reform real estate development and financing methods in accordance with the principle of “seeking progress through progress, promote stability first and then break”, give full play to capital market functions, and support the adjustment of the housing supply structure, accelerate the development of affordable housing, increase the supply of improved housing and expand the effective supply of rental housing. ”. Optimize financing systems such as stocks, bonds, asset-backed securities and real estate investment trusts for real estate development enterprises, promote the transformation of real estate development enterprise financing from relying on entity credit to project-based conditions, and meet the reasonable financing needs of real estate development enterprises with different ownership systems. Do a good job in capital market entry supervision, information disclosure supervision, and fund supervision in the real estate sector, steadily prevent, resolve and dispose of risks related to real estate, and promote high-quality real estate development.

II. Support reasonable financing for real estate development enterprises

(1) Support the refinancing of listed real estate development companies. Strengthen the function of the capital market and support listed real estate development enterprises to refinance through distribution to specific targets. The funds raised should be invested in market-based real estate projects that meet policy requirements, and the project development companies responsible for implementation should meet regulatory requirements. For overseas listed real estate development companies that refinance, continue to complete relevant filing work in accordance with relevant regulations.

(2) Support mergers, acquisitions and restructuring of listed real estate development companies. Give full play to the role of the capital market as the main channel in corporate mergers, acquisitions and restructuring, and support listed real estate development companies to comprehensively use tools such as shares, targeted convertible bonds, cash, etc. Among them, those that issue shares or targeted convertible bonds to purchase assets can raise supporting funds and use them for real estate projects that meet policy requirements and pay consideration for this restructuring transaction. Listed companies in industries closely related to real estate, such as construction, are implemented in accordance with the policies of listed real estate development companies.

(3) Support real estate development companies to issue corporate bonds and asset-backed securities (ABS). Efforts are made to meet the reasonable bond financing needs of state-owned and private real estate development enterprises, and further improve audit efficiency. Support real estate development companies to issue corporate bonds to raise funds mainly for real estate projects that meet policy requirements. The scale of capital raised should match the capital required for the project, and the project development company responsible for implementation should meet regulatory requirements. For existing corporate bonds, rolling renewals are permitted. Support real estate development companies to issue commercial real estate mortgage support securities (CMBS) and real estate ABS based on real estate projects with steady operation and good cash returns. Professional institutions are encouraged to support real estate development companies in issuing bond financing through guarantees and the creation of credit protection tools in accordance with the principles of marketization and legalization of the rule of law.

(4) Promote the high-quality development of real estate investment trusts (REITs). Revitalize existing assets, broaden equity financing channels for real estate development companies, etc., and support the issuance of REITs based on eligible projects such as rental housing and urban renewal, or the inclusion of listed REITs as expansion assets. Research and optimize the original stakeholder supervision and project net cash flow distribution ratio requirements for rental housing to support the construction of a rental housing system. Steadily promote the development of commercial real estate REITs.

(5) Continue to promote pilot work on real estate private equity funds. Support private equity fund managers who meet the regulations to set up real estate private equity investment funds, introduce institutional capital, and invest in real estate projects that meet policy requirements.

III. Optimizing the supervision of real estate securities issuers

(6) Optimizing securities issuance admission supervision. Strictly control the entry points for real estate development enterprises to issue securities, and highlight the characteristics of “project-based” financing. Listed real estate development companies that refinance focus on whether their internal control systems such as fund management, land acquisition, project construction and sales are sound and effective, and whether project development, registered capital payment, and corporate qualifications are legal and compliant. Where shares are issued or targeted convertible bonds are purchased, the focus is on whether the underlying asset business is carried out legally and in compliance, whether the valuation and pricing are reasonable and fair, and whether this restructuring is conducive to improving the quality of listed companies. Real estate development companies that issue corporate bonds focus on the compliance, profitability, and rationality of capital requirements for fund-raising real estate projects. When issuing ABS, the focus is on the ownership status of the underlying assets and the continued stability of cash flow. The issuance of REITs focuses on the ownership status of real estate projects, completeness of procedures, maturity of operating models, and continuous stability of operating capacity.

(7) Optimizing the supervision of information disclosure. Compile the main responsibility of real estate securities issuers to disclose information, and urge them to disclose information truthfully, accurately, completely, in a timely and fair manner. Guided by investor needs, focus on the characteristics of equity debt financing, optimize the information disclosure content of real estate development enterprises, and improve the pertinence and effectiveness of information disclosure. Strengthen the supervision of real estate securities issuers in implementing corporate accounting standards and financial information disclosure rules, focus on the implementation of accounting standards such as consolidated statements and income, and urge them to improve the quality of financial information disclosure.

(8) Strengthen the supervision of fund-raising. Strict continuous supervision and penetrating supervision of raised funds. Real estate securities issuers are urged to establish and improve internal control systems for the storage, use, and supervision of funds raised, and strengthen the management of special fund-raising accounts. Real estate development enterprises are urged to use raised funds or recover funds in accordance with regulations or agreed purposes, and must not change uses without authorization or disguise; it is strictly prohibited for controlling shareholders or actual controllers to occupy raised funds or recover funds in violation of regulations. Sponsors, bond trustees, REITs and ABS managers and custodians are urged to be diligent and conscientious, carry out capital flow and investment penetration checks in strict accordance with the requirements, and continue to supervise real estate development enterprises to use raised funds and recover funds in accordance with the law and regulations. Adhere to problem orientation, carry out targeted penetrating inspections on the use of funds raised and recovered by real estate development enterprises, and continue to do a good job of supervising the use of funds raised by securities.

(9) Resolutely crack down on and curb illegal acts. Implement the “Opinions on Strictly Combating Illegal Securities Activities in accordance with the Law” of the General Office of the Communist Party of China and the General Office of the State Council, strictly prevent illegal acts such as fraudulent issuance of real estate securities, falsification of information disclosure, and misappropriation of funds raised, strengthen the crackdown on third parties cooperating with fraud and securities violations by intermediaries such as sponsors, underwriters, accounting firms, etc., and have “zero tolerance” for all kinds of financial fraud. Illegal cases where circumstances are egregious, have a significant impact on the market, and cause major risks are severely punished according to law.

4. Focus on preventing and mitigating capital market risks in the real estate sector

(10) Strengthen risk monitoring related to real estate. Implement requirements for early identification, early warning, early exposure, and early disposal, establish and improve working mechanisms for pre-investigation and prediction of capital market-related risks in the real estate sector, further strengthen real estate risk monitoring and supervisory coordination, strengthen follow-up and judgment on cross-cutting risk points related to stocks, bonds, asset management products, etc. related to real estate development enterprises, and effectively prevent systemic risks.

(11) Safely prevent and mitigate risks related to real estate. Strictly implement the delisting system, carry out delisting supervision of listed real estate development companies in a steady and orderly manner, clear diversified delisting channels, and do a good job of delisting listed real estate development companies and related investor protection. For real estate development companies that have defaulted on bonds, cooperate with the city government where they are registered, urge enterprises, major shareholders, and actual controllers to raise funds from various sources, follow the principles of marketization and legalization, and steadily promote the disposal of defaulted bonds. Research and improve the bond default risk mitigation and disposal toolbox, and enrich diversified real estate bond risk management mechanisms.

(12) Strengthen expectation guidance and policy coordination. Strengthen policy interpretation, clarify implementation requirements, and stabilize market expectations. Strengthen policy coordination, actively cooperate with industry authorities and local governments, establish joint risk prevention and control mechanisms with local governments, and work together to promote the steady and healthy development of the real estate market.

This article was selected from the “Securities Regulatory Commission's official website”; Zhitong Finance Editor: Huang Xiaodong.