Investor apathy puts Cheung Kong hotel IPO on hold

Cheung Kong (Holdings) has been forced to delay a plan to raise up to US$800 million by listing four extended-stay hotels after it failed to attract enough sponsorship from institutional investors.

People in the investment community familiar with the deal told the South China Morning Post that Cheung Kong, the flagship arm of the business empire of Li Ka-shing, had been in formal or informal meetings with potential investors, including some big fund houses, over the listing plan.

However, by yesterday there had been little progress, and a key investor meeting that had been scheduled for the day before was suddenly cancelled for unclear reasons, said the people, who declined to be identified as they were not authorised to speak to the media.

Extended-stay hotels typically offer suites that are larger than hotel rooms and may include small kitchens.

"This kind of business is pretty good and stable in Hong Kong, because as you know many white-collar employees, especially expatriates, like to be able to take their luggage and move in," said one of the people who reviewed the potential investment.

While the hotels are established, mature assets, investors in an initial public offering might be seeking greater potential for upside appreciation, the person said.

Now, Cheung Kong faces two options - to launch the listing in the first half of next year in the hope that the market will be in better shape, or to restructure the deal by injecting more assets that will pique investors' interest.

The city's second-largest developer by market share said earlier that it proposed to float the extended-stay hotels business by way of a listing of stapled securities on the main board of the Hong Kong stock exchange.

A stapled security is a financial product comprising two or more securities, such as a share in a corporation and a unit in a unit trust, which are contractually bound together and cannot be traded separately.

Horizon Hospitality, the listing candidate, is a trustee-manager that owns four hotels - two in Kowloon and two in the New Territories - which together have 4,833 suites with a total gross rental area of 3.32 million sq ft.

Bank of America Merrill Lynch, DBS Bank and Standard Chartered worked on the deal.