Article by Jeffrey H. Chen , Phillip K. Smith , David A. Ellis , Andrew P.B. MacGeoch and Yong Ren

Originally published 22 March 2010

Keywords: REITs, China, consultation draft, Interbank Bond Market, Beneficiary Trust Certificates,

A consultation draft of the "Interbank Bond Market Administrative Measures for Issuance of Beneficiary Trust Certificates under Real Estate Investment Trust" (the "Measures") is currently in limited circulation. Informed sources indicate that the Measures may soon be promulgated by the People's Bank of China ("PBOC") and the China Bank Regulatory Commission ("CBRC") of the People's Republic of China ("PRC").

The Measures contemplate the entrustment under the PRC Trust Law by domestic PRC entities of real estate property located in the PRC to qualified PRC trustees who will manage and dispose of such property in accordance with the trust contract. The trustee will in turn issue beneficiary trust interests for investment and trading in the PRC interbank bond market. Payments under the beneficiary trust interests will be backed by income realized from, and proceeds from disposition of, such entrusted property.

The Measures do not contemplate property under development, but only finished property generating income. Properties eligible for entrustment include both residential and commercial properties. It appears that multiple properties may be entrusted under a single trust arrangement. There is, however, a retention requirement, i.e., a subordinate beneficiary interest of 20% - 30% is required to be retained by the property sponsor.

Promulgation of the Measures would complement the suite of related measures previously promulgated by the CBRC, such as the measures on securitization of credit assets (2005) and the measures on collective fund trust schemes (2007), both of which utilize the PRC Trust Law.

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