Hui Xian Reit fails to impress on debut

Hui Xian Real Estate Investment Trust, the first yuan-denominated share offering outside the mainland, had a less than stellar debut, dropping 9.35 per cent.

The reit was launched in a falling market, with the Hang Seng Index dropping 0.36 per cent yesterday, its fourth decline this week. The index lost 1.7 per cent this week.

But the reit, a spin-off of Li Ka-shing's Beijing Oriental Plaza, outpaced the broader market falls. The stock opened at 4.83 yuan (HK$5.78), hit a high of 5.10 yuan before finishing at 4.75 yuan - against its offer price of 5.24 yuan. The offering was priced at the bottom of the indicative range to up to 5.58 yuan.

Brokers believe many investors who used margin financing to buy the stock sold their holdings, leading to the unimpressive first-day performance.

The offering raised 10.48 billion yuan. The proceeds will go to its shareholders, including Li's flagship companies, Cheung Kong (Holdings) and Hutchison Whampoa, Bank of China and China Life Insurance.

Hui Xian has said it would need to borrow again to add properties to its portfolio. Oriental Plaza is currently its only asset.

Despite its novelty status as the first yuan-denominated equity offering, Hui Xian has not been seen as a must-have stock among retail investors, mainly because of its unattractive yield.

Response from the public to the reit's listing was lukewarm and the public tranche was just 2.19 times subscribed.

The international tranche was 'moderately' oversubscribed, according to a filing with the stock exchange, which did not give the exact amount of share orders.

Hui Xian had expected a good response to the public tranche, and allocated 20 per cent of the offering to the general public - double the usual minimum of 10 per cent. The international tranche constituted 80 per cent of the shares on offer.

Hui Xian said its yield would be between 4 per cent and 4.26 per cent per share based on forecast profit of 140 million yuan and revenue of 404 million yuan.

The financial industry has high hopes for Hui Xian, which has been seen as an important step for the internationalisation of the yuan.

Banks and brokerages want to fuel investor interest in the currency, which is expected to continue to appreciate. But the mainland has tight control of the currency, and repatriating capital still requires official approval because the yuan is not fully convertible.

According to Haitong International Asset Management, which launched the first yuan-denominated bond fund in Hong Kong in August, there has been strong interest from investors in Japan and South Korea because they do not have ready access to yuan deposits or other yuan-denominated products.

The mainland securities house believes having yuan products will boost their fund management operations.

Kenny Tang Sing-hing, a general manager at AMTD Financial Planning, said the weak debut of the reit would not deter further yuan share sales in future.

'It's not just investors here that are interested in yuan products,' Tang said. 'Many individuals from the mainland are now actively investing in the Hong Kong stock market. The fact that they could trade in yuan here would be very appealing because they won't have to face foreign-exchange risk.'

Cool market

Despite its novelty, the public's response to Hui Xian Reit was lukewarm

The number of times the public tranche of 400 million shares in the offering was subscribed by retail investors: 2.19