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Li Ka-shing’s Hui Xian Hong Kong Yuan IPO Declines on Debut

Hong Kong billionaire Li Ka-shing
Hong Kong billionaire Li Ka-shing. Photographer: Jerome Favre/Bloomberg

Billionaire Li Ka-shing’s Hui Xian Real Estate Investment Trust, Hong Kong’s first stock sale denominated in yuan, fell on its debut after offering the lowest yield among property trusts in the city.

Hui Xian declined as much as 11 percent and ended its first day 9.4 percent lower at 4.75 yuan. The trust raised 10.5 billion yuan ($1.6 billion) selling units at 5.24 yuan each, the low end of its price range.

Backed by an office and retail development in Beijing, the trust has a forecast yield of 4.26 percent compared with an average estimated yield of 4.85 percent for Hong Kong-traded REITS. Hui Xian marked the first time in at least eight years that 82-year-old Li, the city’s richest man, had to settle for the lowest amount sought in an IPO of a property trust.

“One of the trust’s selling point was that you’re also betting on yuan appreciation, but this might’ve turned away some investors because they thought the procedure of exchanging yuan to invest is just too much trouble and complicated,” said Castor Pang, research director at Cinda International Holdings Ltd. “This adds to the fact that it offers a slightly lower return than most other REITs out there.”

Individuals applied for about 2.2 times the stock reserved for them, according to a statement to the Hong Kong stock exchange yesterday.

The three other REITs backed by Li that sold stock in IPOs since 2003 raised the maximum targeted amount, data compiled by Bloomberg show. Prosperity REIT, Li’s last REIT IPO 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,” Alex Au, managing director of Richland Capital Management Ltd. in Hong Kong, which oversees $300 million of assets, said before the shares started trading. “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.

Yuan Deposits

Li is seeking to take advantage of China’s efforts to promote international use of its currency and swelling yuan deposits in Hong Kong.

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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