Similarities and differences of governance mechanism with listed companies
Public REITs and the governance mechanism of listed companies are both institutional arrangements to solve the principal-agent relationship. In the design, public REITs make appropriate arrangements according to the governance of listed companies.
From the perspective of legal basis, public REITs are contractual funds, whose legal basis is mainly securities law and securities investment fund law, and its operation is directly based on fund contracts. The legal basis of listed companies is mainly company law, and its operation is directly based on the articles of association.
From the structure of governance structure and the division of governance responsibilities, the basis of public offering REITs is trust relationship. The governance structure of REITs is that the fund share holder is the trustor, the fund manager and the fund trustee are the trustee. Both the fund holder and the fund trustee have the right to supervise the fund manager, and the fund share holder assembly is the fund authority. The general meeting of unit holders of public REITs funds has the prior decision-making power on the acquisition or sale of major projects, major related transactions, and the replacement of external management agencies.
The listed company is an independent legal entity established in accordance with the company law. The governance structure mainly includes the general meeting of shareholders, the board of directors, the board of supervisors and the management. The general meeting of shareholders is the highest authority of the company. The main functions and powers of the board of directors include: convening the general meeting of shareholders, deciding on major plans, formulating major plans, deciding on the establishment of the companys organization, engaging the management and formulating the basic system.
From the perspective of property custody mechanism, public REITs are significantly different from listed companies. The property custody of listed companies is mainly in the charge of the company itself, and the property custody and investment operation are integrated in the listed company. The public REITs has a fund trustee, which not only exercises the functions of fund property custody and fund manager supervision, but also increases the custody of ownership certificate, fund account and cash flow supervision and supervision The project company has many functions such as insurance and borrowing.
From the perspective of information disclosure requirements, the information disclosure requirements of public REITs are similar to those of listed companies.
To sum up, the governance mechanism of public offering REITs not only has the characteristics of contractual funds, but also has part of the governance mechanism arrangement of listed companies, which greatly improves the protection of the interests of fund share holders.
The general meeting of fund unitholders is the authority of public offering REITs, which has four main characteristics: decision-making power in advance of major issues, hierarchical voting mechanism, avoidance voting mechanism, and higher participation of investors.
In order to protect the interests of investors, public offering REITs can introduce external professional institutions in many aspects, and enhance the professionalism of infrastructure project investment and operation management with the help of professional institutions.
During the operation of public REITs, the project value is continuously evaluated by professional institutions, and active management is done well. During the existence of public REITs, the fund manager shall employ an appraisal institution to evaluate the project assets once a year. In case of any significant impact on the interests of fund share holders, it is necessary to employ an appraisal institution to evaluate the project assets in time. The assessment institution shall not provide assessment services for the same infrastructure fund for more than three consecutive years.
In order to strengthen the operation and management responsibilities of the underlying assets of public REITs, the guidelines clearly stipulate that the fund manager is the main body of project operation and management. At the same time, in order to improve the professionalism of project operation and management, fund managers are allowed to purchase project insurance, formulate and implement operation strategies, sign agreements, handle lease management, daily operation services and project maintenance and transformation The responsibilities are entrusted to external management institutions, and the fund manager still undertakes other important operation and management matters.
Before deciding to employ an external management institution, the fund manager shall conduct full due diligence on the external management institution to ensure that it has professional management ability. When the two parties engage the project manager, they should make sure that the project manager and the external management agency are appointed. The fund manager shall evaluate the performance of external management institutions at least once a year, and inspect relevant documents of project operation and management at least once every six months.
The guidelines on public offering REITs clearly stipulates that the fund manager of public offering REITs shall stipulate in the fund contract the legal circumstances for dismissing the external manager. In case of other circumstances, the fund manager may replace the external management institution by voting at the general meeting of fund unit holders.
Source: Ren Hui, editor in charge of China Securities Journal_ NBJ9607