* 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 listing)
HONG KONG, Oct 12 (Reuters) - 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 publication.
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 jurisdictions.
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 tool.”
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)