Li Ka-shing’s $1.6 Billion Yuan IPO Debuts in Hong Kong Today

Billionaire Li Ka-shing at a News Conference in 2011
Li Ka-shing, chairman of Cheung Kong (Holdings) Ltd. and Hutchison Whampoa Ltd., speaks during a news conference to announce the company's annual results in Hong Kong, on March 29, 2011. Photographer: Jerome Favre/Bloomberg

Hong Kong billionaire Li Ka-shing’s Hui Xian Real Estate Investment Trust, the city’s first stock sale denominated in yuan, will begin trading today after selling units at the low end of a price range.

The trust raised 10.5 billion yuan ($1.6 billion) selling units at 5.24 yuan each, according to a statement to the Hong Kong stock exchange yesterday. Hui Xian will have a forecast yield of 4.26 percent, based on pricing assumptions presented in the company’s share sale document. That is the lowest among Hong Kong-traded REITs, data compiled by Bloomberg show.

The 82-year-old billionaire, 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. Individuals applied for about 2.2 times the stock reserved for them, according to its statement yesterday. The three other REITs backed by Li that sold stock in initial public offerings since 2003 raised the maximum targeted amount, data compiled by Bloomberg show.

“There’ll be selling pressure from institutional investors,” said Kevin Gin, a Hong Kong-based analyst at Yuanta Securities Co. Given the trust’s yield and balance sheet, “there’s just better and more attractive investment opportunities out there,” Gin said.

Hui Xian marked the first time in at least eight years that Li had to settle for the lowest amount sought in an IPO of a property trust. Li’s Prosperity REIT, his last IPO of a REIT in Hong Kong, which started trading in December 2005, drew retail orders of 300 times the stock on offer.

Li’s REITs

Underwriters BOC International Holdings Ltd., Citic Securities and HSBC Holdings Plc set aside 20 percent of the total offering in Hui Xian 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.

“It looks like it won’t be as successful as people thought it would be,” said Alex Au, managing director of Richland Capital Management Ltd. in Hong Kong, which oversees $300 million of assets. “Very strong response for the IPO was expected from the retail market, but it turns out it was barely oversubscribed.”

Prosperity REIT now has an indicated yield of 5.91 percent, according to Bloomberg data. Suntec Real Estate Investment Trust and Fortune Real Estate Investment, the REITs Li took public in Singapore in 2003 and 2004, have yields of 6.07 percent and 6.51 percent, respectively, according to Bloomberg data.

Hui Xian traded as low as 5.15 yuan yesterday in the gray market, according to data compiled by PhillipMart, a unit of Phillip Securities Group in Hong Kong.

Yuan Deposits

There are about 200 billion yuan 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 for the stock sale.

“Originally, people thought that if this is successful, there will be more yuan-denominated IPOs in Hong Kong, but if this stock goes below water, then the interest for future yuan-denominated IPOs will be lower,” Au said.

Yuan deposits in Hong Kong may rise to 870 billion yuan by the end of this year, Zhang Guangping, deputy director general of the China Banking Regulatory Commission’s Shanghai branch, said today. The city’s yuan-denominated deposits reached a record $52 billion in February.

Oriental Plaza

Hui Xian, controlled by Li’s Cheung Kong (Holdings) Ltd. and Hutchison Whampoa Ltd., 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.

“The properties are of good quality in a prime location, but that may not make up for other risk factors,” said Katie Chan, Hong Kong-based analyst at Haitong International Securities Group Ltd. “For example, some investors may think there may be potential exchange rate gain, but the IPO prospectus actually made it clear that dividends may not be paid in yuan.”

Hui Xian’s ownership claim to the assets backing the trust expires in 2049, according to the IPO prospectus.

Li was ranked 11th in Forbes magazine’s annual global rich list last month with an estimated wealth of $26 billion.

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