Waiting for the reit to pop
Shares in the Link Reit, which have surged to a record high of $17.85 - and stood at over $16.50 this week - have gained more than 60 per cent from the initial offering price of $10.30. The Housing Authority raised $22 billion in the initial public offering of the real estate investment trust, which is now worth $35 billion. It should be held guilty of setting the price too low.
I supported public-housing tenant Lo Siu-lan's move to seek a judicial review to prevent the authority from selling its assets at too low a price. Although the Court of Final Appeal's ruling affirmed the legitimacy of the authority to dispose of its assets, it asserted that the public housing facilities and residents' quality of life should not be affected.
The authority, unfortunately, had still not learned a lesson from the aborted reit share sale, when it relaunched the trust at the end of last year. It failed to take the necessary measures to safeguard the reit's long-term revenue and tenants' interests.
Worse still, by following the advice of its investment and financial consultants, the authority ended up undervaluing its assets. The leading restructuring adviser, global co-ordinator and listing agent - UBS Investment Bank - even predicted reit shares would hit $20.28 in 12 months, in a research report released only three months after the initial public offering.
Rumour has it that the Children's Investment Fund Management - the Link Reit's largest shareholder, with an 18-per-cent stake - will join forces with other investment funds to boost the reit's yield. It reportedly plans to call a shareholders' meeting to either overthrow the existing management or force it to make its shopping malls more profitable.
UBS Investment Bank's inconsistency in its estimation of the reit's value would not have been possible if Secretary for Housing, Planning and Lands Michael Suen Ming-yeung had been able to avoid the mistakes he was warned about.
Since November 2004, I have made repeated attempts to explain the illegitimacy of the authority's sale of public assets at cut-rate prices, and the sale of its entire stake of assets. However, this has fallen on deaf ears.
I recently raised in the Legislative Council the issue of a possible raid on the reit by overseas hedge funds, which might deprive public-housing residents of their rights and have serious social and political fallout. Again, my question was ignored.
Mr Suen failed to address the problem involving UBS Investment Bank, which issued conflicting assessments on the reit over a short period of time. He also refused to admit the Housing Authority had made a mistake by selling off its entire stake.
Although single shareholders who own more than a 5 per cent stake are required to disclose their interests, the Link Reit's assets can be sold off within two years of their acquisition. That decision can be made by just two or more shareholders holding at least 20 per cent of the units. Institutional investors, who have probably bought up 70 to 80 per cent of the units, can do so any time now.
As for protecting the rights of public-housing tenants, Mr Suen noted that the reit must sell its entire holding of shopping malls and car parks at once, rather than piecemeal, which will deter property owners from carving up the assets to reap excessive profits.
But he has yet to realise that property owners can still effectively sell their properties under the guise of a long-term 'lease' deal.
Policy secretaries may turn a blind eye to the questions raised by lawmakers. However, they are ultimately accountable to the public. The issue of the Link Reit concerns 3 million public-housing residents. If not handled properly, it may evolve into a serious social and political crisis and harm the interests of many.
We will keep our eyes open and see how the government defuses this time bomb.
Albert Cheng King-hon is a directly elected legislator
