Li Ka-shing attends a press conference in Hong Kong in February. Li's Hui Xian REIT - the first yuan-denominated IPO in the city - raised 10.5 billion yuan. Ed Jones / AFP

Demand for first yuan REIT IPO subdued at 5.24 yuan per unit

Tycoon Li Ka-shing's Hui Xian Real Estate Investment Trust (Hui Xian REIT) - the first yuan-denominated initial public offering (IPO) in Hong Kong - raised 10.5 billion yuan based on an IPO price at 5.24 yuan per unit, Bloomberg reported Wednesday.

It came in at the lower end of an indicative price range between 5.24 and 5.58 yuan per unit.

The prospect of yuan appreciation was not enough for Li to raise the maximum amount sought as other REITs traded in the city offer higher yields and investors can open bank accounts on the mainland and earn similar returns, according to Kenny Tang, executive director of AMTD Financial Planning Ltd. He added that limited prospects for early gains may also have deterred investors.

Individuals applied for about 2.5 times the stock reserved for them, Bloomberg quoted two people with knowledge of the matter as saying. This compared with 300 times subscription when the Prosperity REIT was listed in December 2005. Prosperity REIT, a portfolio of Cheung Kong Holdings's seven commercial and industrial properties located in the Hong Kong decentralized business districts, was listed in the city more than five years ago.

The People's Bank of China has raised interest rates four times since October as it tries to cool a property bubble and tame inflation. The interest rate is 3.25 percent on a one-year deposit and 4.15 percent on a two-year deposit on the mainland.

Yield return is another concern for investors, as the yield of the Hui Xian REIT is forecast to be lower than all the local-listed REITs, said Jonas Kan, head of Hong Kong research at Daiwa Securities Capital Markets.

Hui Xian REIT sold 2 billion units at 5.24 yuan per unit and will have a forecast annualized yield of 4 to 4.26 percent per unit based on pricing assumptions presented in the company's share sale document.

Most of the REITs listed in Hong Kong have yields of 5 percent to 6 percent, according to Kan. The yield returns on the Prosperity REIT, Link REIT, Regal REIT and Champion REIT in 2011 are all hovering in a range between 4.5 to 4.9 percent.

Other analysts said that the lukewarm response toward the Hui Xian REIT IPO is related to the recent jitters in the local stock IPO market.

"Due to recent global market volatility, the performance of most of the IPO stocks is not good. It will take a toll on market sentiment. Moreover, as the Hui Xian REIT is yuan-denominated, it slashes the demand for margin lending so that it weakens investors' willingness to subscribe to the REIT," said AMTD's Tang.

"REITs tend to trade less actively than other stocks as investors hold them for their yield, making them less attractive to retail buyers seeking quick gains," Dickie Wong, a research manager at Kingston Securities, told China Daily.

The assets of Hui Xian REIT are backed by the Oriental Plaza properties which cover 100,000 square meters (1.1 million square feet) along Changan Avenue in central Beijing. Oriental Plaza consists of eight premium office towers, a shopping mall, a Grand Hyatt Hotel and serviced apartments, according to its website. Cheung Kong owns 33.4 percent of Oriental Plaza while its affiliate Hutchison Whampoa Ltd holds 18 percent, according to the companies' 2009 annual report.

Bloomberg contributed to this story.

China Daily

(HK Edition 04/21/2011 page2)