China’s First Tunnel REIT Gets Listed in Shanghai

China's first real estate investment trust to have a tunnel as its underlying asset has been listed on the Shanghai Stock Exchange, broadening the range of assets in the REITs market while providing infrastructure firms with a more flexible financing channel.

The REIT was launched by Shanghai Tunnel Engineering Company and is managed by Orient Securities Asset Management, with the Qianjiang Tunnel in Hangzhou as the underlying asset, the Shanghai Observer reported today. The listing raised CNY4.7 billion (USD689 million).

Infrastructure REITs turn income-generating infrastructure assets into tradable equity products. Since launching a pilot program in 2020, China has seen 78 such REITs come to market with a combined value in excess of CNY200 billion (USD29.3 billion), according to Cushman & Wakefield, a leading global commercial real estate services firm.

Investor demand was strong, with the offering drawing more than CNY250 billion in subscriptions, setting a new China record for highway-related REITs by both the amount and multiple, the newspaper noted.

By packaging the tunnel into a REIT, STEC reduced the investment payback period to just 6 years to 8 years from more than 25, sharply improving capital efficiency and giving the company greater room to expand, according to Wang Liyin, deputy general manager of STEC Shanghai Jianyuan Financial Management.

The tunnel, a 4.45-kilometer crossing under the Qiantang River that opened in 2014, connects Hangzhou, the capital of Zhejiang province, with Haining, a county level 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 percent and 25 percent, respectively, according to STEC.

The tunnel could generate about CNY7.7 billion (USD1.1 billion) in toll revenue from last October to April 2039, with most of that distributed to the REIT’s investors, per estimates.

Shares of STEC [SHA: 600820], a major engineering firm specializing in tunnels and underground spaces, closed 0.3 percent lower at CNY6.15 (90 US cents) in Shanghai today. The stock has fallen 5.2 percent since the end of last year.