A public REIT has once again experienced a price drop below its issuance price during its first day of trading. On August 7, Huatai Three Gorges New Energy REIT began trading on the Shanghai Stock Exchange, marking the second offshore wind power asset in China's public REIT market. However, the product fell nearly 3% intraday, breaking its issuance price, and ended the morning session down 1.77%. By the close of trading, the secondary market performance of Huatai Three Gorges New Energy REIT finally turned positive, closing up 0.06%.
Public information shows that Huatai Three Gorges New Energy REIT is the first energy public REIT in Northeast China, with its underlying asset being the Three Gorges New Energy Dalian Zhuanghe III offshore wind power project, which has a total grid-connected capacity of 298.8 MW. An industry insider analyzed that this phenomenon is a combined result of weak overall market sentiment and a negative feedback loop from previous new energy REITs breaking their issuance prices, reflecting more on the market pricing environment than the asset's quality.
Data indicates that this is not an isolated case, and public REIT products, particularly industrial park REITs, have seen significant retracements this year. Some industry professionals believe that the REIT market has entered a short-term negative feedback loop of "decline—liquidity loss—decline," but valuations have fallen to historically low levels. With the first batch of four REIT index funds entering their position-building phase, which will bring deterministic capital inflows, the market's unilateral downtrend is expected to be nearing its end.
On August 7, Huatai Three Gorges New Energy REIT was listed on the Shanghai Stock Exchange, becoming the first energy public REIT in Northeast China and the 11th in the overall market. The product is backed by the Three Gorges Group's subsidiary, Three Gorges Energy, as the original equity holder, with Huatai Securities (Shanghai) Asset Management Co., Ltd. serving as the fund manager and asset-backed securities manager. The total issuance was 500 million units, raising 4.0065 billion yuan, with an offline subscription ratio exceeding 160 times and an online subscription ratio exceeding 38 times. However, in secondary market trading, the REIT quickly declined after opening, hitting an intraday low of 7.776 yuan, a 2.96% drop from the issuance price. By midday, the loss narrowed to 1.77%, and in the afternoon session, the price rebounded, finishing the day in positive territory. At the close, Huatai Three Gorges New Energy REIT rose 0.06% for the day, barely holding above the issuance price.
As the second offshore wind power-themed public REIT in China, the asset quality of Huatai Three Gorges New Energy REIT had drawn market attention. Public information reveals that its underlying asset, the Dalian Zhuanghe III offshore wind power project, has a total grid-connected capacity of 298.8 MW, achieving full grid connection in November 2020. It is one of the established large-scale offshore wind projects in Liaoning, with the original equity holder having a state-owned enterprise background. Researcher Jiang Rui from GeShang Fund pointed out that the intraday break of the issuance price, followed by a recovery to a slight gain of 0.06% at the close, is a result of weak market sentiment combined with the negative feedback from the previous new energy REITs breaking their issuance prices. He emphasized that the break reflects the market pricing environment rather than the asset's intrinsic quality.
Notably, Huatai Three Gorges New Energy REIT is not the first new product this year to break its issuance price on its debut day. The AVIC CNNC New Energy REIT, which launched in late July, broke its issuance price on the first day, falling 5.83%, although the decline has since narrowed. Other newly listed products have also faced similar setbacks. Data shows that several public REIT products listed this year have fallen below their issuance prices. For example, among the first batch of four commercial real estate REITs, CSOP Shanghai Real Estate Commercial REIT and Citic Prudential Shounong Commercial REIT have both dropped below their issuance prices. CSOP Shanghai Real Estate Commercial REIT, issued at 4.092 yuan per share, now trades at 3.546 yuan, down 13.34%. Citic Prudential Shounong Commercial REIT, listed on June 18 at 3.013 yuan, now trades at 2.980 yuan, a 1.10% decline. Additionally, the AVIC CNNC New Energy REIT, issued at 6.619 yuan per share in late July, now trades at 6.420 yuan, a 3.01% drop.
Furthermore, the public REIT secondary market has faced pressure recently, with many existing products seeing retracements, and several falling over 30% this year. The CCB Zhongguancun Industrial Park REIT and Zhaoshang Science and Technology Incubator REIT have declined by over 40%. Among these, industrial park REITs have experienced the largest retracements, reflecting a broad downward revision in valuations across the sector. Jiang Rui attributed this to fundamental pressure, increased market supply, and diversion of capital from dividend assets. Specifically, industrial parks are heavily influenced by regional economies, industry recruitment, and corporate demand, leading to fluctuations in occupancy rates and rents. Market expectations for profit recovery have cooled, compressing valuations. Additionally, the supply of commercial REITs in the second quarter diverted significant allocation funds to primary market "new issuance," draining secondary market liquidity. Meanwhile, strong A-share tech themes in the first half of the year attracted capital to high-beta sectors, pressuring fixed-income-like REITs.
Regarding the future of the public REIT secondary market, Jiang Rui said that the market has entered a short-term negative feedback loop, but valuations are at historical lows. With the first batch of four REIT index funds in their position-building phase, providing deterministic capital inflows, the market's unilateral downtrend is likely nearing its end. However, he advises against a one-time heavy position, recommending a phased approach to wait for catalysts from index fund building and insurance capital entry.
Comments