LEGISLATORS FIND IT puzzling. Why should we decide to privatise a public asset - the Housing Authority's car parks and shopping centres - and then offer only 10 per cent of the issue to the Hong Kong public? The answer they have received from officialdom is a good deal less than convincing. Housing Secretary Michael Suen Ming-yeung says that a 90-10 split in favour of big financial institutions is the norm in big initial public offerings across the world. Once again we have that others-do-it-that-way-and-so-we-have-to-do-it-that-way-too attitude. Our government is a dedicated follower of fashion. But so what if others do it that way (and let us not accept too quickly that they always do). This is not a normal public offering. In the first place, we have a public asset on offer here, not a private company. We thus have excellent reason and opportunity to offer the people who hitherto owned this asset a proportionally greater chance to own it themselves directly rather than through a government agency. It is, secondly, not a normal offering because what we are selling here is a real estate investment trust, not a joint stock company. The idea behind reits is to give individual investors easier access to property investment by bundling up a number of properties and paying out substantially all of the net rental proceeds as dividends. But if 90 per cent of this reit is going to big financial institutions rather than individual investors, why bother with a reit at all? Why not just form a normal property investment company and offer shares in it the normal way? The Housing Authority could probably get a higher price for these assets if it did so. The reason it has opted for a reit, of course, is that reits are fashionable these days. Singapore has them and therefore we must have them too if we are to compete with Singapore, which is why we have given the job of managing this reit to a Singaporean company. Makes perfect sense, does it not? We shall also ignore the fact that the real reason for the creation of reits is that they constitute a tax dodge in places like the United States while we do not have any taxes that a reit can be used to dodge. This should be no problem, however. We shall just create a new tax so that we can then have the tax dodge. It has actually, cross my heart, been proposed. Makes perfect sense once again, does it not? But this still leaves us with the basic question. Why only 10 per cent to Hong Kong individual investors? We certainly have the money for this offering. We are so flush with cash that our banks have $400 billion more in deposits than they have in loans at the moment while more money is still pouring in on speculation of a yuan revaluation. And the Hong Kong individual investor certainly has reason to be attracted by the 7 per cent yield that the new entity will offer. He has to struggle to find a bank deposit that offers an interest rate of more than one tenth of 1 per cent. This reit will return him 70 times as much and is almost as secure as a bank deposit. The demand from small investors will prove enormous. Why so little to them then? Let me take my stab at this puzzle. I think the reason that 90 per cent of this offering is earmarked for big institutions is that Mr Suen had the wool pulled over his eyes by the investment bankers to whom he went for advice. They want it this way because then they control the allocations. Let us listen in on the conversation as one of them calls his clients. 'Hey Joe, remember that CDS [or DSC or SDC] we sold you last month? Yeah, a dog, I know. Sorry about that. But listen, I've got a good one for you to make up for it. You won't believe this but we got the Hong Kong government to give us a 7 per cent reit on their car parks and shopping malls. 'Stop laughing, Joe. They really did, top-class asset, secure as can be and with a currency fixed to the greenback. What's that? No I can't give you quite that much but we'll do you well. We got 90 per cent of it between us on the syndicate. It's your turn to owe me one now. Stop laughing, I tell you.' We have assumed here, of course, that the investment banks involved will not actually take this reit for their own books. Do I hear you say they would not have the gall to try it? No, of course they would not, not here in Hong Kong when they can just book it to themselves under a different name in London or New York. And why should they sell it to the Hong Kong public when that would stop them from playing one for me, one for you and for me again? There are no worthwhile favours to be gained from small clients and these foreign-based banks have never bothered to set up a proper mass market distribution service in Hong Kong anyway. They would have to get local brokers to do most of it for them. Where is the money in that? Yes, we got took once more, proper suckers once again. Hello there, Mr Suen.