HONG KONG, Nov 16 (Reuters) – A relaunch of Hong Kong’s $2.8 billion IPO for the Link REIT is expected to be at least 10 times oversubscribed, with institutional investors particularly keen, brokers and market sources said on Wednesday.
The government’s second attempt to sell 151 shopping centres and 79,000 car parks through the world’s biggest IPO of a real estate investment trust (REIT) has seen its institutional book 13 times covered as of midday on Wednesday, market sources said.
But there has been no repeat of the frenzied ordering by individual Hong Kong investors late last year before the IPO was scuppered by a last-minute legal challenge by an elderly public housing tenant.
Having cleared the legal hurdles, the Link has lowered the dividend yield it was offering investors from last year, while interest rates have risen about 300 basis points in the interim.
Brokers expect retail investors to make less than HK$100 billion worth of orders, or about 18 times the HK$5.65 billion worth of units initially on offer.
That would be about just one-third of HK$280 billion worth of retail orders that the Link REIT attracted in its first attempt to list.
“Retail investors are more cautious now after losing money in several new offerings,” said Tony Leung, chief operating officer at Sun Hung Kai Securities, which received just about HK$600,000 worth orders in the Link REIT.
Hong Kong’s Housing Authority, hoping to raise HK$22 billion ($2.8 billion) in the IPO, has earmarked 30 percent, or 577.75 million units for retail investors. The ratio will go up to at least 50 percent if the portion is 25 times subscribed.
Last year, 67 percent of the deal went to retail investors.
The retail part of recent IPOs such as China Infrastructure Machinery Holdings Ltd. and Samson Holding Ltd. were undersubscribed.
“The retail demand can’t even match China Construction Bank,” said one broker. China Construction Bank , which raised US$9.18 billion in the world’s largest IPO in four years, attracted retail orders worth HK$136.7 billion last month.
“LONG-TERM POTENTIAL”
But the Link’s international book is doing well, drawing about HK$180 billion ($23 billion) worth of orders, market sources said.
REITs are generally popular with pension funds and insurance companies that want to offset long-term liabilities. Their dividends, derived mostly from the rental income of their properties, are higher than bond yields while REIT units tend to be less volatile than stocks.
“Although the yields on offer are not that attractive, we are looking at long-term potential as efficiency ratios improve,” a Hong Kong fund manager said, referring to the Link’s promises to upgrade its buildings.
Investment banks expect US$500 million demand for the Link REIT from index benchmark funds that track MSCI and EPRAN/NAREIT Global Real Estate Indices and about US$170 million from Hong Kong’s Mandatory Provident Funds.
The Housing Authority is offering 2.138 billion units in the Link REIT, including an over-allotment option, at HK$9.7-$10.3 each.
With a 5 percent discount, retail investors will receive an annualised dividend yield of 5.8-6.2 percent in the year ending March 2006 and a yield of 6.3-6.7 percent in 2007.
Some analysts say this is too small, especially because the United States Federal Reserve is expected to lift rates by 50 basis points more, having already hiked them by 300 basis points over the past 17 months.
“Given 10-year EFN (Exchange Fund Note) could reach 5-5.5 percent next year, we believe a 50-100 basis points yield spread would be too small for a new REIT in a new REIT industry,” Credit Suisse First Boston wrote in a research note.
Japanese trusts trade at around 200 basis points to 10-year bonds, while spreads in Singapore are about 150 basis points.
Malaysia’s Starhill REIT, which aims to raise US$140 million by paying a dividend yield of 6.1-6.2 percent, offers a spread of about 190 basis points over 10-year bonds.
(US$1=HK$7.8)
By Daisy Ku
Source: Yahoo News Asia
Photo credit: Captain Kimo via VisualHunt / CC BY-NC-ND
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