HONG KONG (Reuters) - Hong Kong's first yuan-denominated IPO plunged as much as 11 percent on its Friday debut as investors turned their noses up at the low yields offered by billionaire Li Ka-shing's Hui Xian (87001.HK) real estate investment trust.
Seeking to tap a growing pool of low-yielding Chinese currency deposits in the territory, Hui Xian was hoping the lure of an appreciating yuan would help attract stronger interest for the REIT.
The weak debut came after Hui Xian, which owns the Oriental Plaza commercial complex in Beijing, priced its $1.6 billion offer at the low end of expectations.
"This IPO was never popular from the word go," said Sylvia Wong, an analyst at UOB Kay Hian. "The underlying asset is not particularly attractive. They only have one property so you have to ask yourself why you want to buy this REIT when others in the market are offering higher yields."
Market sentiment for China IPOs has also soured in the past week, with Chinese car dealer Pangda Automobile Trade Co Ltd (601258.SS) tumbling 23 percent in its Shanghai debut on Thursday. China stock markets closed out their worst week this year on Friday. .HK
Hui Xian closed down 9.4 percent at 4.75 yuan, after earlier trading as low as 4.66 yuan, compared with its 5.24 yuan IPO price.
The dismal debut comes nearly one month after another flop for billionaire Li, the $5.5 billion initial offering of Hutchison Port Holdings Trust (HPHT.SI). The Singapore-listed trust is down 9.4 percent since going public last month, trading below its IPO price for all but two days.
A disappointing start to Hui Xian could prevent other property developers from rushing to the market with similar products, analysts say.
When asked about Hui Xian's debut, Hong Kong Exchange and Clearing (0388.HK) CEO Charles Li said: "Any transaction that is completed is a successful transaction. But in the end, whether a particular transaction trades better or worse, that's really up to the market."
BALLOONING YUAN DEPOSITS
A surge in yuan-denominated deposits in Hong Kong has been driving many companies to issue bonds in the Chinese currency in the territory. Equity offerings are seen as the next step as Beijing looks to make its currency more international.
Investors holding yuan deposits in Hong Kong get paid rates of 0.4 percent to 0.6 percent, while yuan-denominated bonds yield between 1 percent and 3 percent, making IPOs denominated in the Chinese currency an attractive option for yield-hungry investors. Some investors are also drawn by the prospect that the yuan will steadily appreciate against the U.S. dollar.
On Friday, the yuan breezed past 6.50 per dollar, surpassing the psychologically important level for the first time and rising 27.5 percent since China's landmark currency reforms in 2005.
Yuan deposits in Hong Kong totaled 407.7 billion yuan at the end of February, more than quadrupling from a year earlier, with authorities and analysts expecting the amount to rise to nearly 1 trillion yuan by the end of 2011.
YIELD NOT ATTRACTIVE
Hui Xian priced at 5.24 yuan, the low end of a 5.24-5.58 yuan range, signaling demand was not as strong as previously anticipated as investors looked for higher-yielding alternatives.
The REIT will yield 4.33 percent in 2011 and 4.73 percent in 2012, the term sheet said.
By comparison, other REITs listed in Hong Kong offer higher returns, although all of those are denominated in Hong Kong dollars, which is tied to the U.S. dollar.
REITs must pay out most of their earnings in dividends to attract favorable tax treatment.
Link REIT (0823.HK) is forecast to yield 4.5 percent in 2011, Regal REIT (1881.HK) 4.8 percent, GZI REIT (0405.HK) 6.9 percent, Prosperity REIT (0808.HK) 5.8 percent and Fortune REIT (0778.HK) 6.5 percent, according to estimates by UBS.
Prosperity and Fortune REITs are also controlled by Li.
Li is a complex figure, regarded for his humble origins and philanthropy and known locally as "superman" for his deal-making prowess. His no-nonsense, hard-driving style helped make him the world's 11 richest man, according to Forbes magazine.
His two major holdings, Hutchison Whampoa Ltd. (0013.HK) and Cheung Kong (0001.HK), are heavyweights not only at home but also globally, owning the world's largest operator of container ports, the biggest health and beauty retailer, and Husky Energy (HSE.TO), Canada's No. 4 oil company, among others.
Hui Xian's Oriental Plaza complex in Beijing includes a shopping center, two serviced-apartment towers, a high-end hotel and eight office buildings.
Office rents in Beijing are a fraction of the rents in Hong Kong or Shanghai because of an abundance of space in the Chinese capital, but that situation should reverse in coming years and could boost Hui Xian, said Nicole Wong, regional head of property research at brokerage CLSA.
Hui Xian's IPO was split, with 80 percent sold to institutional investors and hedge funds overseas and 20 percent to retail investors in Hong Kong, according to a term sheet of the offering seen by Reuters last week.
The retail portion of the IPO was subscribed just 2.5 times, which is relatively low compared with other initial offerings in Hong Kong.
BOC International (3988.HK), Citic Securities and HSBC (0005.HK) (HSBA.L) were hired as joint bookrunners for the Hui Xian offering. ($1 = 6.502 Chinese yuan)