Banking & Finance

Li’s hot property

Debut Hong Kong IPO in renminbi could be first of many

Asia’s richest man, Li Ka-shing, is said to set his watch eight minutes early, because “eight” sounds like “prosperity” in Cantonese.

Perhaps it keeps him ahead of the competition too, and this month Li was in first place again, with the announcement of the inaugural yuan-denominated initial public offering in Hong Kong.

The Hui Xian real estate investment trust (REIT) – owned by Li’s flagship Cheung Kong Holdings – aims to raise between Rmb10 billion and Rmb12 billion ($1.5 billion and $1.8 billion) from a Hong Kong IPO on April 29. The trust plans to sell two billion units at an indicative price of Rmb5.24 to Rmb5.58 each, the company said in a news release.

Hui Xian REIT is entirely backed by property asset Oriental Plaza, a commercial complex in Beijing comprising a shopping centre, two serviced apartment towers, a high-end hotel and eight office buildings. Cheung Kong owns 33.4% of Oriental Plaza, while Hutchison Whampoa, also controlled by Li, owns 18%.

Analysts reckon appetite for the shares will be strong because Hong Kong investors have few options to park their renminbi deposits besides low-yielding bank accounts or yuan bonds, also known as ‘dim sum bonds’, which gained popularity as a fundraising tool last year. And with the renminbi expected to gain 5% against the dollar in the year ahead, currency appreciation will also be factored in to expected returns, calculates the Beijing News.

According to 21CN Business Herald, paper copies of the prospectus were swept clean the first day.

The institutional tranche of the listing came close to being fully subscribed on the first day of its launch on Monday, says the Wall Street Journal.

That’s not surprising. When Li backs a deal, excitement is usually high. In 2000, when his internet unit Tom.com held an IPO, it was 670 times oversubscribed. The listing of his life-sciences start-up was also oversubscribed, this time a more modest 120 times.

Li also has a reputation for trading genius, including a track record of selling at close to the top of the market (perhaps this suggests he thinks China property toppy?). Still, bookrunners opened the share sale to retail investors for nine days from April 11 – an unusually long offering period – in view of the debut status of the yuan-denominated IPO.

HSBC, which is managing the deal, has added 150 extra staff across 30 branches in Hong Kong to help people with inquiries about the subscription process.

Even Li’s star power has its limits. Having just one asset in the portfolio has put off some investors, say brokers. Hui Xian says it is actively looking for new assets to reduce dependence on Oriental Plaza. Moreover, the dividend yield for Hui Xian is not overly attractive. A stipulated yield up to 4.26% is lower than average for Hong Kong-listed REITs of close to 5%. And the closest direct comparison to Hui Xian would be GZI REIT, backed entirely by property assets in Guangzhou (but denominated in Hong Kong dollars) yields 6.3%.

In Singapore, where REITs are much more popular, CapitalRetail China Trust, wholly backed by retail assets in China and denominated in Singapore dollars, also yields around 5%. But a successful listing of the Hui Xian REIT may encourage other companies to launch similar products in Hong Kong. Data from the Hong Kong Monetary Authority shows that renminbi deposits had reached the equivalent of $56 billion in January. That is six times higher than a year earlier, and around 30 times the size of the Hui Xian IPO. That explains why there are rumours of other renminbi-denominated IPOs. China’s largest jewellery retailer Chow Tai Fook, also owned by an influential tycoon, is said to be planning a yuan-tranche for a listing of its own.

Keeping track: In issue 103 we wrote about Hui Xian Real Estate Investment Trust, Hong Kong’s first renminbi- denominated IPO. The REIT – a spin-off of property in Beijng owned by Asia’s richest man Li Ka-shing – started
trading last Friday. But it seems like even Li’s star power has its limits: the stock fell 9.4% to Rmb4.75 below its issue price of Rmb5.24 on its trading debut. Despite its novelty status as the first yuan-denominated equity offering, Hui
Xian has not been seen as a must-have by retail investors, mainly because of its unattractive yield, says the South China Morning Post. The public tranche was just 2.19 times subscribed. The international tranche was also only “moderately”oversubscribed, according to a filing with the stock exchange.(6 May 2011)


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