* Deal would be second investment trust in Hong Kong
* Cheung Kong/Hutchison to hold under 30 pct of hotel trust
* IPO cash for buying hotels from Cheung Kong/Hutchison
(Adds details of trust, comments, previous Hong Kong trust
HONG KONG, Oct 12 Hong Kong tycoon Li Ka-shing's
property firm Cheung Kong (Holdings) Ltd plans to list
its extended stay hotel business in a deal that could raise up
to $800 million, IFR reported on Friday, citing sources with
knowledge of the plans.
The offer would be only the second by an investment trust in
Hong Kong, which competes for listings with Singapore where
business trust IPOs are common. The deal is slated to take place
before the end of the year, added IFR, a Thomson Reuters
Initial public offerings (IPOs) in Hong Kong have plunged
more than 80 percent in 2012 from 2011, with investors ignoring
new issues after being burnt by the poor performance of several
large listings last year.
The proposed deal would be similar to a real estate
investment trust (REIT), offering investors fixed returns
through annual yield payments. Investment trusts in Hong Kong
are only allowed to invest in one industry, unlike in other
The hotel offering follows the $1.2 billion IPO last year of
HKT Trust, the telecom business spin-off of PCCW Ltd
. HKT Trust has soared nearly 50 percent since the
offering, compared with a 19.6 percent gain in the benchmark
Hang Seng index.
"This IPO is a good decision," said Alvin Cheung, associate
director at Prudential Brokerage in Hong Kong. "The market is
unstable because of the effects from Europe and some investors
are afraid of the market, so to diversify and for prudence, they
will look to put money in some stable or high yield investment
Business trusts are popular with companies because they
allow them to raise cash without relinquishing control. In a
business trust model, the trust sells units to investors, but
control of the business is left with the trustee manager, who is
usually an affiliate of the company establishing the trust.
Cheung Kong said in a securities filing the listing
application for the investment trust was submitted on Thursday.
The company plans to spin off the extended stay hotel business
into Horizon Hospitality (Holdings), which will own four hotels,
two in Kowloon and two in the New Territories, which together
have 4,833 suites.
Extended stay hotels typically offer suites that are larger
than hotel rooms and facilities such as kitchens.
The trust will list share-stapled units, also known as
stapled securites. Immediately following the completion of the
transaction Cheung Kong and its telecoms-to-ports conglomerate
affiliate, Hutchison Whampoa Ltd, will in aggregate
hold less than 30 percent of the trust. Cheung Kong will retain
control of the trustee manager, called Magnificent Merits Ltd.
Each share-stapled unit comprises a unit of Horizon
Hospitality Investments, a preference share in Horizon
Hospitality (Holdings) and an interest in ordinary shares of
Horizon Hospitality (Holdings) held by the trustee manager.
Bank of America Merrill Lynch, DBS and
Standard Chartered were hired to handle the investment
trust offering, IFR added.
(Reporting by Fiona Lau of IFR and Alison Leung; Writing by
Elzio Barreto; Editing by Mark Potter and Richard Pullin)