Marrying bank wealth management products to infrastructure projects

Recently, in the course of providing legal services, the author was involved in a transaction in which a bank used a wealth management product to invest in an infrastructure project. To solve its financing issues, the infrastructure project contemplated attracting other investors through equity financing of the project company. The bank utilised funds from its wealth management product fund pool to invest close to RMB1 billion (US$163 million) through its trust company in the project company by way of a capital and share increase and, before maturity of the wealth management product, divested from the project company by way of a one-way reduction of the capital of the project company to realise the returns.

For infrastructure project investors, bank wealth management products exceeding RMB25 trillion in total are like a cake suspended in the air, and getting a piece of it is not only dependent on the investor’s vision and strengths, but also on whether it has the guts to try a new means of project financing.

New channel

Bank wealth management products are a new financing channel for infrastructure projects. Bank investment products that invest in the infrastructure sector are usually in the form of a trust. The trust company co-operates with a bank, with the bank offering a renminbi-denominated wealth management product and, after the funds are raised, the trust company is then responsible for investing them in the relevant project.

The cost of the funds invested in the infrastructure projects generally does not exceed 8%, which is relatively low when compared to other financing methods. Furthermore, entering an infrastructure project though a capital and share increase can not only relieve capital pressures, but can also reduce the project company’s – and its original shareholder’s – asset-to-liability ratio.