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Country Garden gets OK to issue 10B yuan rental housing quasi-REIT securities

Country Garden Holdings Co. Ltd. secured the green light from the Shenzhen Stock Exchange Feb. 2 to offer 10.00 billion yuan worth of asset-backed securities for its long-term leasing of apartments, the largest ever securitized product of its kind in China's rental housing sector.

The developer is partnering with Chinese real estate fund manager Zhonglian Fund for the issuance and has received an AAAsf rating for the securities from a domestic rating agency, according to a company statement released Feb. 5.

Country Garden, China's largest homebuilder by sales, earlier announced a plan to build 1 million rental apartments under its BIG + Bijia International Community brand, as a response to the central government's call to build up the residential leasing market.

Country Garden's sale of asset-backed securities, or what is also known as quasi-real estate investment trusts in China, is one of the the first of its kind in China for rental housing financing products, which use rental income as an underlying asset.

So far, the few quasi-REITs that have been launched in recent years in China — part of a wave of financial innovation — have been backed by office buildings and shopping malls.

Analysts believe such new financing products will help boost Country Garden's liquidity, but for the product itself, it does not yet represent a big breakthrough for the introduction of REITs in China.

Not to be confused with actual REITs, quasi-REITs are debt instruments, while the former has equity interests in properties.

"Quasi-REITs, including Country Garden's product, are private placements [instead of being offered publicly]," Alan Jin, a property analyst at Mizuho Securities said in an interview with S&P Global Market Intelligence.

"Their interest rates and terms are fixed, [compared to] a non-fixed rate and an indefinite period in real REITs," Jin added.

China has yet to set up a REIT framework according to the standards widely accepted by the international investor community due to its government's continued reliance on property transactions to generate tax revenue. Generally, REITs pay little taxes on the assets they have stakes in as they distribute most of their earnings to investors in dividends.

Country Garden's CFO and Vice President Wu Bijun said in the statement that the company plans to invest "hundreds of billion worth of renminbi" in the rental apartment sector as the industry is turning toward the existing residential stock sector from the build-to-sell market.

Before the latest offering, the company also signed strategic agreements with CITIC Bank Corp. Ltd. and China Construction Bank Corp. to receive funding for its long-lease apartments.

As of Feb. 2, US$1 was equivalent to 6.30 yuan.