First batch of coal power REITs approved on the same day: Huaneng's fundraising capped at 3 billion RMB, nearly half used to repay original shareholder loans

On September 20, the CSRC approved three public REITs in a single day. In addition to China Merchants Shekou Commercial REIT, the underlying assets of the other two are coal-fired power plants: Huaxia China Resources Power Coal-Fired Generation REIT and Great Wall Huaneng Coal-Fired Generation REIT, marking the market's first batch of coal-power asset public REITs. As of that date, 28 inaugural public REITs have been approved this year (excluding expansions), with 8 coming from September alone. No third coal-power project has yet appeared on the review list of the Shanghai and Shenzhen Stock Exchanges.

Both applications were filed on May 6 and accepted on May 12. On June 9, the SZSE issued an inquiry letter to China Resources, while the SSE provided feedback to Huaneng. On September 20, both received registration approval on the same day. The China Resources REIT is listed on the SZSE, structured as a closed-end contract for 20 years with 700 million units. Huaxia Fund serves as the manager, CITIC Securities as the special plan manager and financial advisor, and China Merchants Bank as the custodian. The original equity holder is China Resources Power Jiaozuo Co., Ltd., backed by Hong Kong-listed China Resources Power Holdings (0836.HK). The underlying plant is located in Bo'ai County, Jiaozuo, Henan. The Huaneng REIT is listed on the SSE, closed-end for 27 years with 1 billion units. It is the first public REIT under Great Wall Fund, managed by Great Wall Securities Asset Management, with Agricultural Bank of China as custodian. The original equity holder is Huaneng Qingdao Thermal Power Co., Ltd., initiated by Huaneng International (600011.SH/0902.HK), with the plant situated in Dongjiakou Port Area, West Coast New District, Qingdao.

According to the approval drafts, China Resources expects to raise RMB 3.103 billion, and Huaneng expects to raise RMB 3.018 billion, totaling approximately RMB 6.1 billion. Compared to the initial filing, Huaneng's final submission included adjustments: the planned fundraising size was reduced from RMB 3.157 billion to RMB 3.018 billion. The net cash flow distribution rate for the first period (April–December 2026) is set at only 5.82%, with nearly half of the proceeds earmarked to repay internal loans within the original shareholder system. Both approvals require managers to launch fundraising within six months of the approval date, with a sales period not exceeding three months.

Capacity Tariffs in the Income Statement

The threshold for including coal power in the REIT pilot program is outlined in Document No. 1014 issued by the National Development and Reform Commission (NDRC) in July 2024: minimum power output in pure condensing mode must not exceed 30% of rated load, or meet other conditions such as biomass, hydrogen, ammonia co-firing, or CCUS. The two 660 MW ultra-supercritical units at China Resources Jiaozuo have completed deep peak-shaving performance tests and obtained certification, allowing minimum pure condensing output to be reduced to 30% of rated load or below.

The electricity pricing mechanism has a more direct impact on cash flow. Starting from January 2024, coal power implements capacity tariffs, charging fixed fees based on unit capacity, decoupled from actual generation volume. The national standard for fixed costs is RMB 330 per kW annually. In the first two years, most provinces recovered 30% of this cost, equivalent to about RMB 100. In January this year, NDRC Document No. 114 unified the recovery ratio to no less than 50%, i.e., RMB 165 per kW annually.

This revenue stream accounts for a small portion of income for both plants. In Henan Province, where China Resources Jiaozuo operates, the RMB 165 rate applies. The project's capacity tariff revenue was RMB 192 million in 2025, accounting for 9.63% of total operating revenue; RMB 164 million in 2024 (7.88%); and zero in 2023. Huaneng Qingdao's capacity income is split into two parts: Shandong's market-based capacity compensation and the national coal power capacity tariff. Capacity compensation revenues from 2023 to 2025 were RMB 270 million, RMB 243 million, and RMB 224 million respectively, declining yearly due to the reduction in the user-side collection standard for Shandong's market-based capacity compensation from RMB 0.0991/kWh in 2024 to RMB 0.0705/kWh.

Electricity sales remain the primary revenue source. In 2025, generation business accounted for 86.68% of total operating revenue for China Resources Jiaozuo and 83.88% for Huaneng Qingdao. Capacity tariffs account for only around 10%, recovering part of the fixed costs but cannot replace energy sales.

Neither valuation model incorporates the price hike from Document No. 114. China Resources uses the current Henan rate of RMB 165 as a long-term assumption, noting in the prospectus that this is the lowest national execution level, with Sichuan and Tianjin at RMB 231, and Yunnan and Gansu at RMB 330, but the model leaves no room for upward adjustment. Huaneng maintains a flat annual capacity tariff forecast of RMB 237 million, comprising RMB 60 million in coal power capacity tariffs and RMB 177 million in market-based capacity compensation. Since capacity tariffs are decoupled from unit utilization hours, energy revenue remains subject to fluctuations in utilization hours.

Valuations Reduced by Approx. RMB 200 Million Post-Inquiry

Forecasts for future cash flows for both projects show growth rates close to zero. China Resources Jiaozuo's projected compound annual growth rate for cash flows during the forecast period is 0.07%, while Huaneng Qingdao's final submission shows a negative 0.85%.

During the inquiry phase, valuations for both projects were downwardly adjusted. China Resources' initial filing used year-end 2025 as the benchmark date, valuing the asset at RMB 3.438 billion (a 79.63% premium), using a pre-tax discount rate of 7.68% and a full-cycle IRR of 4.96%. The inquiry response changed the benchmark date to end-March 2026, lowering the valuation to RMB 3.371 billion and raising the discount rate to 8.03%. Huaneng's initial filing also used year-end 2025, valuing the asset and planned fundraising at RMB 3.157 billion. After feedback, the benchmark date was similarly moved to end-March 2026, reducing the valuation to RMB 3.016 billion (a 26.28% premium), with a post-tax discount rate of 5.95% and a full-cycle IRR of 5.92%. The final submission determined the fundraising size at RMB 3.018 billion. Post-inquiry, the combined valuation of the two projects decreased by approximately RMB 208 million. Note that one discount rate is pre-tax and the other post-tax, making direct comparison invalid.

The assessment assumes declining utilization hours year by year. Citing data from the China Electricity Council, the national average utilization hours for thermal power equipment dropped from 4,216 hours in 2020 to 4,147 hours in 2025, an average annual decline of 11.5 hours. Huaneng's model assumes unit utilization hours of 4,390 in 2026, slowly decreasing to 4,344 by 2030, after which they stabilize.

In sensitivity analysis, electricity prices and coal prices are the dominant valuation variables. In Huaneng's model, a 5% change in market transaction electricity prices leads to a ~14.6% change in valuation in the same direction; a 5% change in input coal unit price leads to a ~12.9% change in the opposite direction. In China Resources' model, a 5% change in generation volume results in a 5.69% change in valuation; a 10% change in capacity tariffs results in a 5.43% change.

Asset lifespans differ significantly. China Resources Jiaozuo's two units came online in December 2014 and June 2015, with a design life of 30 years, leaving remaining lives of approx. 18.99 and 19.43 years. The fund's 20-year closed period extends 收益 until end-May 2045, roughly matching the unit lifespan. Huaneng Qingdao's two 350 MW supercritical cogeneration units came online in October and November 2022, having just turned three years old at the benchmark date, with the fund's closed period set at 27 years.

RMB 1.48 Billion Raised to Repay Original Shareholders

Huaneng's final submission details the use of the RMB 3.018 billion raised. In 2026, approx. RMB 1.518 billion will be used as capital expenditure for acquiring project company equity, while approx. RMB 1.48 billion will be used to repay principal and interest on loans, accounting for about 49% of the fundraising size; an additional RMB 8.385 million will be repaid in 2027.

This loan is not a bank loan. The final submission discloses that the project company, Huaneng Dongjiakou (Qingdao) Thermal Power Co., Ltd., had no external loans or guarantees. During restructuring, it assumed internal loans transferred from Qingdao Thermal Power. The fund enters via a special plan through equity plus shareholder loans. Upon fundraising completion, these internal loans are immediately repaid, returning funds to the Huaneng system. In the distributable cash flow calculation table, this item is listed as 'repayment of external loans,' reflecting the perspective at the fund level. The project company is a newly established SPV on July 4, 2025, with registered capital of RMB 1 million. Audited pro forma statements by EY show net profits of RMB 80 million, RMB 91 million, and RMB 306 million for 2023–2025, with 2025 operating revenue at RMB 1.781 billion.

A related-party transaction announcement from Huaneng International in April this year indicated the upper limit for the equity transfer price is expected to be RMB 2.21 billion, not lower than the state-owned asset filing valuation. Net recovered funds are primarily intended for a 1 GW offshore wind project in Qingdao. Pre-issuance approvals are now complete. Huaneng International received approval from the HKEX for spin-off listing on August 7, and Huaneng Group received approval from SASAC for non-public agreement transfer on August 12.

The China Resources deal does not involve large-scale fundraising for debt repayment. The base fundraising amount is RMB 3.103 billion, lower than the RMB 3.438 billion filing valuation. The difference corresponds to beginning-of-period retained cash at the project company, which remains entirely within the project company without double-counting. Only RMB 83 million in loans are repaid, retaining approx. RMB 400 million in external loans for revolving use, to be fully repaid by the end of Year 16. 15% of net recovered funds will supplement working capital, while the remaining 85% will be invested in the Phase II Xiantao Power Plant and Phase II Yichang Cogeneration Project of China Resources.

Control arrangements are consistent across both deals, with original equity holders and affiliates strategically allocating 51%. Consolidation is expected to continue post-issuance, with Huaneng's strategic allocation locked for no less than 60 months from the listing date.

3km Coal Conveyor Bridge Kept Outside Fund Assets

Profit growth at China Resources Jiaozuo in recent years is mainly driven by coal prices. Input coal unit prices dropped from RMB 835.83/ton in 2023 to RMB 783.08/ton in 2024, and further to RMB 686.56/ton in 2025. In 2025, the project generated 4.423 billion kWh, a YoY decline of 4.94%, with generation revenue of RMB 1.733 billion. Net profits were RMB 234 million, RMB 240 million, and RMB 340 million, with EBITDA at RMB 531 million, RMB 551 million, and RMB 677 million. The prospectus attributes profit growth to widening spreads between electricity and coal prices. Despite shrinking volume, profit growth is contributed by margin expansion.

Inquiries specifically addressed an asset excluded from the pool. Coal transport assets, including the conveyor bridge and coal yard of the Jiaozuo company, span approx. 3km from the railway dedicated line terminus to the main plant area. Their net book value accounts for 10.17% of the Jiaozuo company's total assets as of end-March 2026. These assets do not enter the pool but are instead leased back to the affiliated Jiaozuo company by the project company, with a 3-year term, automatic renewal for another 3 years with a renewal commitment, and charged at a reasonable profit margin of 4.85%. Reasonable profit from these assets in 2026 is approx. RMB 10.285 million. Regarding carbon emissions, the project company has opened a basic account in the National Carbon Emission Rights Registration System. Starting January 2026, it reports carbon emissions in its own name, entering its first accounting year. A trading account will only be available in 2027.

Huaneng Qingdao covers three businesses: power generation, steam supply, and heating. It is the only large centralized heat source in the Dongjiakou Economic Zone. Among Qingdao's dispatchable coal power plants, only Datang Huangdao, Huadian Qingdao, and this project exist. From 2023 to 2025, steam supply volume increased from 853,500 tons to 1.0363 million tons, but the unit price dropped from RMB 238.53/ton to RMB 182.26/ton; volume growth failed to offset the price decline. Unit utilization hours for power generation in 2025 were 4,513.63 hours. Its power business license was issued on June 23 this year, valid until 2046.

Based on the approval draft calculations, China Resources' net cash flow distribution rates for 2026 and 2027 are 7.85% and 7.79% respectively. For Huaneng, since the fund operates from April 2026, the distribution rate for April–December is 5.82%, corresponding to distributable amount of RMB 176 million; the full-year 2027 distribution rate is 8.00%, corresponding to distributable amount of RMB 241 million, with a full-cycle IRR of 5.92%. Both must launch sales within six months of approval, with a sales period not exceeding three months. Strategic investors subscribe to 51% upfront and lock in, leaving less than half for offline and public investors for both deals.