Li Ka-Shing’s ARA Considers Yuan IPO as Currency Demand Wanes

Cheung Kong (Holdings) Ltd. Chairman Li Ka-shing
Li Ka-shing, chairman of Hutchison Whampoa Ltd. and Cheung Kong (Holdings) Ltd. Photographer: Dale de la Rey/Bloomberg

ARA Asset Management, the manager of property trusts backed by Li Ka-shing, is considering Singapore’s first yuan-denominated stock offering even as expectations for the currency’s appreciation wane.

ARA said it’s exploring is the possible establishment and listing of a real estate investment trust with assets located in China and traded in yuan, according to a statement to the Singapore stock exchange today. The company was responding to media reports about the plans.

The company hired Citigroup Inc., DBS Group Holdings Ltd. and Standard Chartered Plc for the initial public offering of one of its property funds, three people with knowledge of the matter said yesterday. The size and timing of the deal have yet to be decided, the people said, declining to be identified because the process is private.

The IPO is being considered even as lowered expectations for the Chinese currency’s appreciation this year mean demand for yuan-denominated investments in Hong Kong is slowing. The only other yuan-denominated stock listed outside of China, Li’s Hui Xian Real Estate Investment Trust, is down 25 percent in Hong Kong since its debut last April.

“It’ll be challenging to launch a yuan IPO in Singapore, where yuan deposits are much lower than in Hong Kong,” said Ronald Wan, a Hong Kong-based managing director at China Merchants Securities Co., which oversees about $1.5 billion in assets. “Investors have been lowering their expectations of yuan appreciation, making it difficult to do such a deal.”

Lowered Expectations

In Hong Kong, deposits in the Chinese currency dropped to 576 billion yuan at the end of January, the lowest level in six months, and investors are demanding higher returns to invest in yuan-denominated debt, known as Dim Sum bonds.

Twelve-month non-deliverable forwards on the yuan were at a 0.3 percent discount to Shanghai’s onshore spot rate as of 5:57 p.m., indicating that traders are paring expectations for appreciation in the coming year. The contract was at a 3.1 percent premium on April 25, 2011, a one-year high, just before Hui-Xian began trading.

Companies offering high enough yields have attracted demand from investors. Ford Motor Co., which this month received orders for ten times the amount it sought in a Dim Sum sale, will pay a yield of 4.875 percent on the March 2015 bonds. That is a full point above the yield on its U.S. dollar bonds.

Hui Xian priced its initial public offering at a forecast yield of 4.2 percent last year, the lowest among property trusts listed in the city. The company raised 10.5 billion yuan ($1.7 billion) by selling units at 5.24 yuan apiece.

ARA, 15.6 percent owned by Cheung Kong Holdings Ltd., has advanced 23 percent this year in Singapore trading, giving it a market value of S$1.16 billion ($919 million). The stock rose 5.6 percent to close at S$1.51 today.

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