Hong Kong’s first stock sale denominated in yuan marked a different kind of milestone for Li Ka-shing: It was the first time in at least eight years the billionaire had to settle for the lowest amount sought in an initial public offering of a property trust.
Li’s Hui Xian Real Estate Investment Trust raised $1.6 billion in an IPO after selling units at the low end of a price range, two people with knowledge of the matter said. The three other REITs backed by Li that sold stock in IPOs since 2003 raised the maximum targeted, data compiled by Bloomberg show.
With Hui Xian forecast to yield 4.26 percent, the lowest among Hong Kong-traded REITs, investors betting on yuan gains can open a bank account across the Chinese border and get similar interest on a two-year time deposit. Limited prospects for early gains may also have deterred individual buyers, said Kenny Tang, executive director of AMTD Financial Planning Ltd.
“Li Ka-shing is usually able to get off everything he puts out there, but this deal may have been too pricey,” said Brook McConnell, president of Hong Kong-based South Ocean Management Ltd., which oversees about $20 million.
Hui Xian’s underwriters -- BOC International Holdings Ltd., Citic Securities and HSBC Holdings Plc (HSBA) -- set aside 20 percent of the total offering for individuals, double the typical retail allotment in Hong Kong IPOs.
The decision was driven by expectations that Hui Xian would be popular among retail investors, people familiar with the process said.
There is about 200 billion yuan ($31 billion) of “idle” Chinese-currency deposits in Hong Kong that could flow into the IPO, according to a sales document sent by one of the underwriters before marketing started. That would be almost 100 times the amount of stock reserved for them.
Instead, individual investors applied for about 2.5 times the shares available, people with knowledge of the matter said. Li’s last IPO of a REIT in Hong Kong, in December 2005, drew retail orders of 300 times the stock on offer.
Li, 82 and Hong Kong’s richest man, is seeking to take advantage of China’s efforts to promote international use of its currency and swelling yuan deposits in Hong Kong. The sale drew institutional investors including Och-Ziff Capital Management Group LLC (OZM), people with knowledge of the matter said last week.
“In Hong Kong, the market has almost no investment opportunities in renminbi products, except the renminbi bond funds, and the yield on this product is more attractive,” said Danny Yan, a fund manager at Haitong International Asset Management, which oversees $600 million. He said the fund planned to subscribe for Hui Xian shares.
So-called Dim Sum bonds denominated in yuan and sold in Hong Kong yielded an average 1.918 percent as of April 19, according to data from HSBC. The interest rate on a one-year yuan time deposit at HSBC in Hong Kong is 0.6 percent or less.
Hong Kong will have more yuan-denominated share sales as deposits of the currency rise, K. C. Chan, the city’s secretary for financial services and the treasury, said in a Bloomberg TV interview today. He said Hui Xian is a “very good product” even though REITs “don’t generate as much excitement as regular IPOs.”
Hui Xian, controlled by Li’s Cheung Kong (Holdings) Ltd. and Hutchison Whampoa Ltd. (13), is backed by the Oriental Plaza in Central Beijing. Covering 100,000 square meters (1.1 million square feet), Oriental Plaza consists of eight premium office towers, a shopping mall, a Grand Hyatt Hotel and serviced apartments, according to its website. Cheung Kong spokeswoman Winnie Cheong didn’t return a call seeking comment.
The tepid response from Hong Kong individuals is a departure for Li, dubbed ‘Superman’ by local media for his ability to generate returns. Having opened a plastic flower factory after World War II, Li has built an empire spanning ports, real estate, hotels, infrastructure and energy -- a feat that landed him on the 11th spot on Forbes annual global rich list last month with $26 billion of estimated wealth.
Among five previous Li-backed IPOs in Hong Kong since 2000, only one failed to raise the maximum targeted: phone carrier Hutchison Telecommunications International Ltd. cut the price of a sale in October 2004 after investors balked at the valuation.
The stock market performance of the other REITs Li took public may have added to investor wariness about Hui Xian.
Shares of Prosperity REIT (808) jumped 20 percent on their first day of trading on Dec. 16, 2005. Since then, they’ve dropped 27 percent, compared with a 56 percent advance in Hong Kong’s benchmark Hang Seng Index. The trust now has an indicated yield of 5.81 percent, according to data compiled by Bloomberg.
Suntec Real Estate Investment Trust and Fortune Real Estate Investment, the REITs Li took public in Singapore in 2003 and 2004, have underperformed the city-state’s benchmark stock index since their IPOs, data compiled by Bloomberg show.
“There maybe some die-hard fans who will jump onto anything put out by Cheung Kong or Hutchison, but if you look at the last two REITs they’ve brought to the market, the performance haven’t been that good, said Lantis Li, an analyst at Capital Securities Corp.
Hui Xian’s ownership claim to the assets backing the trust expires in 2049, according to the IPO prospectus. That may further dent the allure of the sale as it limits investors’ ability to benefit from yuan gains, according to CLSA Asia- Pacific Markets.
Another concern is potentially limited volume of trading in the secondary market, limiting the potential for IPO investors to make a profit, said Ronald Wan, Hong Kong-based managing director of China Merchants Securities Co.
A better way to benefit from the Hui Xian REIT may be to invest in Cheung Kong, Li’s flagship company. The IPO will lift Cheung Kong’s net asset value and lower its indebtedness, CLSA, the brokerage arm of France’s Credit Agricole SA, said April 14, rating the stock “buy.” Cheung Kong owns 33.4 percent of Oriental Plaza.
“To get rich with Li Ka-shing, it’s better to invest with him than buy from him,” Andrew Riddick, an analyst at CLSA, said in the April 14 note.