Problems feared in handling the flood of applications for Link Reit and Air China's IPOs Banks are anticipating huge problems in handling the expected flood of applications from retail investors when two red-hot listings come on the market next month. The initial public offerings of Link Reit, Hong Kong's first real estate investment trust, which is expected to raise between $22 billion and $25 billion, and Air China's bid to raise up to US$1 billion are both scheduled for December 6. Sources said last night that the receiving banks had asked Air China's underwriters to consider delaying its IPO by one day to avoid chaos. Earlier the banks said they would need more time to process the retail portion of Air China's offering with the strong response expected for Link Reit. A spokeswoman for the Bank of China (Hong Kong), one of the receiving banks for both issues, said she was unable to comment on the IPOs. Link Reit and Air China are expected to start trading in Hong Kong on December 16. According to fund managers, Merrill Lynch is forecasting Air China's net profit to grow by 14 per cent in the next year, largely fuelled by the carrier's expansion after the IPO. Merrill Lynch and China International Capital Corp are the sponsors for the Air China IPO. Link Reit comprises a portfolio of the Hong Kong Housing Authority's 151 malls and 79,000 parking spaces in the territory. Underwriters expect the offering to be oversubscribed more than 10 times. A key attraction is a dividend yield which could be as high as 7.3 per cent, according to analysts. To make sure the price is affordable for small-scale investors, each board lot of Link Reit will comprise just 500 to 1,000 shares, following the example of the MTR Corp privatisation in 2000. 'When MTR Corp offered its shares, each board lot was only 500 shares,' said a source close to the deal, who stressed that the size of the Link Reit retail offer had not yet been finalised. Another source said the retail portion would be sizeable but was unlikely to be as high as 50 per cent. The precedent set by MTR Corp and the Tracker Fund showed that the government would try to maximise public participation, he added. 'It is understood the retail shops owned by the Housing Authority are not as good as those owned by private developers, in terms of location and design,' said a senior executive of a private developer. However, the attractiveness of the offering was the potential decline of the operating costs, which would in turn secure a stable income return, he said. 'Most investors are looking at an anticipated improvement of the stable return as the cost-to-income ratio is expected to drop after the privatisation,' he said. Usually the ratio is only 20 per cent for private developers. Some reach 30 per cent, but the cost-to-income ratio of the portfolio owned by Link Reit is as high as 50 per cent. Link Reit has drawn interest from tycoons such as Henderson Land Development chairman Lee Shau-kee, who has been reported as planning to spend $1 billion buying into the trust. Sino Land chairman Robert Ng Chee Siong also said he was studying its potential.