Taizhou Water (HKG: 01542) has announced its intention to launch a REIT-like product on the Shenzhen Stock Exchange around June 2026 or a later date to be determined. The purpose is to invest in underlying assets, securitize them, and raise funds for the operation and development of the group's business. The proposed registered issuance size will not exceed RMB 3.2 billion.

The board is pleased to announce that at a board meeting held on June 10, 2026, it resolved to convene an extraordinary general meeting to seek shareholder approval for a subscription matter and the proposed issuance of the REIT-like product. To adjust the shareholding structure of Binhai Water in preparation for the subscription and the proposed REIT-like issuance, the board also approved the Binhai Water Acquisition. Taizhou City Water has conditionally agreed to sell, and the company has conditionally agreed to purchase, a 49% equity interest in Binhai Water for a consideration of approximately RMB 147 million.

The company's actual effective interest obtained from the Binhai Water Acquisition is 8.82%, corresponding to an actual consideration of approximately RMB 26.5482 million. As Taizhou City Water is a non-wholly owned subsidiary of the company, and the cash consideration received by Taizhou City Water will not be distributed to its non-controlling interests, the Binhai Water Acquisition will not have any impact on the consolidated cash flow of the group.

Upon completion of the Binhai Water Acquisition, the company will proceed with the subscription, with a total subscription amount not exceeding RMB 1.28 billion, representing no more than 40% of the total issuance size of the REIT-like product. Following the issuance, the company, as a subordinated holder, will hold no more than 40% of the REIT-like product. The remaining portion (i.e., no less than 60%) will be held by senior holders through their subscription of senior tranches at issuance.

For the issuance, the company will appoint a plan manager. The company (as seller and originator), the plan manager (acting as plan manager and on behalf of the REIT-like product as buyer), and Binhai Water intend to enter into an equity transfer agreement. The company conditionally agrees to transfer all equity in Binhai Water to the REIT-like product managed by the plan manager for a cash consideration of approximately RMB 301 million.

Upon completion of the equity transfer agreement, the company will no longer hold direct equity in Binhai Water but will hold a direct 40% interest in the REIT-like product, which will wholly own Binhai Water. The company has control over the REIT-like product because it has the rights and ability to direct the relevant activities that significantly affect its returns. This control is exercised through its rights on the REIT-like product's investment management committee.

Specifically, the investment management committee has three seats, two of which are held by the company. According to the standard terms, resolutions require a supermajority vote, meaning approval by at least two-thirds of the committee members. Therefore, the company not only controls the REIT-like product but also indirectly controls Binhai Water. After the equity transfer, the company will consolidate Binhai Water's financial performance, with 60% of its performance attributable to non-controlling interests.

The company's subscription of up to 40% of the subordinated tranche is a necessary precondition and core structural arrangement for the successful issuance of this REIT-like product. This arrangement is a common market-based credit enhancement mechanism, where the subordinated tranche bears residual risk to enhance credit for senior investors, ensuring stable returns for them. It is an indispensable foundation for the product's successful issuance and asset revitalization, with full commercial rationality and fairness.

Expected Benefits of the REIT-like Issuance

The issuance is expected to bring comprehensive, long-term core value aligned with the interests of the company and all shareholders:

1. Optimize Capital Structure and Reduce Debt-to-Asset Ratio

Upon completion, the group's consolidated debt-to-asset ratio is expected to decrease significantly. Assuming all transactions were completed by December 31, 2025, the ratio is estimated to drop from about 77% to about 45%. This is primarily due to the RMB 1.92 billion increase in assets from senior tranche proceeds and the simultaneous reduction of RMB 1.65 billion in assets and liabilities from Binhai Water repaying existing bank loans. This will lower financial leverage and debt pressure, providing solid financial support for future business expansion.

2. Reduce Financial Expenses and Enhance Profitability

Proceeds can be used to repay existing debt, which is expected to significantly reduce the group's financial expenses, thereby increasing net profit and improving profitability.

3. Revitalize Existing Water Assets and Improve Capital Efficiency

Using the Taizhou City Water Diversion Project Phase III as the underlying asset, approximately RMB 3.122 billion (based on appraisal value) of existing assets will be revitalized, converting dormant assets into disposable working capital for debt repayment and operational funding, enhancing state-owned asset operation and capital turnover efficiency.

4. Maintain Consolidated Control and Retain Long-term Core Asset Returns

By holding the subordinated tranche and two-thirds of the investment committee's voting rights, the company retains actual control over the REIT-like product and underlying assets. Core water assets remain consolidated, allowing the company to retain long-term operational returns and appreciation potential.

5. Align with Policy Direction and Create a Taizhou State-owned Benchmark Project

The issuance actively responds to national policies on revitalizing existing assets and deepening SOE reform, further enhancing the company's market influence and brand image.

6. Increase Overall Working Capital

Proceeds will be used to repay the project company's existing debt and supplement its working capital. Injecting liquidity directly into the project company increases the group's overall working capital from the source, improving capital efficiency and financial flexibility.

Following the issuance, the company will continue as the asset service provider, responsible for the operation and management of the underlying assets. Operating income will continue to be generated by the project company (Binhai Water), included in the company's consolidated financial statements, and related operating cash inflows will continue to be accounted for by the company, providing sustained, reliable endogenous support for the group's overall working capital.