China’s First Tunnel REIT Debuts on Shanghai Stock Exchange

Select Language:

On April 22, the first real estate investment trust (REIT) in China backed by a tunnel as its underlying asset was listed on the Shanghai Stock Exchange. This development broadens the spectrum of assets available in the REITs market and offers infrastructure companies a more adaptable financing option.

The REIT was launched by Shanghai Tunnel Engineering Company and managed by Orient Securities Asset Management, with the Qianjiang Tunnel in Hangzhou serving as the underlying asset, according to reports. The listing successfully raised approximately CNY4.7 billion (equivalent to about USD689 million).

Infrastructure REITs transform income-generating infrastructure assets into tradable equity products. Since the pilot program’s launch in 2020, China has seen 78 such REITs enter the market, with a combined value exceeding CNY200 billion (around USD29.3 billion), according to a leading global commercial real estate services firm.

Investor interest was notably high, with the offering attracting over CNY250 billion in subscriptions. This set a new record in China for highway-related REITs in both total subscription amount and multiple.

By converting the tunnel into a REIT, the Shanghai Tunnel Engineering Company shortened the investment recovery period from over 25 years to just 6-8 years. This move significantly boosted capital efficiency and provided the company more room for future expansion, explained Wang Liyin, deputy general manager of Shanghai Jianyuan Financial Management.

The tunnel itself is a 4.45-kilometer crossing beneath the Qiantang River, which opened in 2014. It links Hangzhou, the capital of Zhejiang Province, with Haining, a city with a population of over a million. Over the past decade, traffic volume and toll revenue have grown at compound annual rates of 29% and 25%, respectively.

Projections indicate that the tunnel could generate about CNY7.7 billion (around USD1.1 billion) in toll revenue from last October through April 2039, with most of these earnings expected to be distributed to the REIT’s investors.

Shares of Shanghai Tunnel Engineering Company, a prominent firm specializing in tunnels and underground spaces, closed slightly lower at CNY6.15 (approximately USD0.90) in Shanghai today. The stock has declined by 5.2% since the end of last year.