Li Ka-shing's property flagship, Cheung Kong (Holdings), plans to list its serviced-apartment business in an investment trust offering that could raise up to US$800 million, people with direct knowledge of the plan say.
According to the sources, demand for a public offering by the business trust has been "robust" as it offers attractive yields to investors amid a lingering euro-zone debt crisis and a slowdown in the mainland economy.
"Listing of Li's business trust offers meaningful cash payment to investors, at higher than the market rate at this juncture," a person familiar with the situation told the South China Morning Post, asking not to be identified because the talks were private.
The proposed listing is set to be launched at a time when Hong Kong's property market continues to defy gravity despite measures initiated by the government to rein in prices.
Horizon Hospitality (Holdings), which owns two hotels in Kowloon and two in the New Territories, providing a total of 4,833 suites, had filed an application to list stapled units on the main board of Hong Kong stock exchange, Cheung Kong said yesterday in a statement posted on the website of the exchange.
The group would retain less than 30 per cent interest in the properties.
Credit Suisse analysts Cusson Leung Kai-tong and Joyce Kwock said in a report that the proposed listing was "a right deal at the right time".
Saying that the group would in effect receive over HK$23 billion in cash, they said it would turn from a 6 per cent net gearing to a net cash position of HK$3.8 billion as a result of the listing.
"The market valuation of a similar hotel room is around HK$7 million, versus our valuation of HK$4 million. We therefore expect a HK$14.3 billion, or HK$6.2 per share, value enhancement should the listing go through," the report said.
"We expect Cheung Kong to continue to churn its assets to increase the asset turnover, and there are still HK$25.4 billion worth of non-core investment properties at its disposal to churn."
Eric Yuen Chi-fung, the head of research at GuocoCapital, said the spin-off would benefit shareholders as the assets should be disposed of when prices were high. "It shows that Cheung Kong thinks the high-growth period [of the business] has already passed, thus it's a suitable time to sell the assets," he said.
This will be the second initial public offering this month by a company controlled by Li. On Wednesday, Dynasty Real Estate Investment Trust, an investor in mainland real estate backed by Li, said it is seeking a spin-off in Singapore.