Investors responded coolly yesterday to the first yuan-denominated initial public offering (IPO) outside of China that is seen as a major step in Beijing’s efforts to broaden the use of its currency.
Units in Hui Xian Real Estate Investment Trust (匯賢房地產投資信託基金) were trading in Hong Kong at 4.75 yuan, down 9.4 percent from the offer price of 5.24 yuan, which was at the bottom end of the proposed issue price range. They fell as low as 4.66 yuan at one point, with analysts blaming the poor performance on the relatively low returns the trust is offering.
The IPO raised 10.5 billion yuan (US$1.6 billion). The international portion of the IPO was “moderately oversubscribed,” while Hong Kong investors applied for 2.2 times more units than were available to them, according to a company announcement.
The IPO is being keenly watched by other companies looking to launch their own yuan-denominated financial products to tap surging investor demand for China’s currency, which has strengthened about 5 percent against the US dollar over the past year.
Beijing is promoting Hong Kong as a platform for yuan-based international banking. Hong Kong banks started handling yuan in 2004 and now offer services including deposits, credit cards and trade financing that allows foreign companies to pay Chinese business partners in yuan. Beijing began allowing foreign companies to issue yuan debt last year. The World Bank, the Asian Development Bank, Caterpillar Inc and McDonald’s Corp have sold yuan-denominated bonds to finance activities in China. Yuan stocks are seen as the next logical step as China expands the so-called offshore yuan market.
With the IPO, “we can help China’s overall strategic development in internationalization of the renminbi,” said Charles Li (李小加), chief executive of Hong Kong Exchanges and Clearing, which operates the city’s stock exchange.
Offshore yuan products will “provide a new and important way for Chinese to invest gradually outside China,” he added.
The amount of Chinese currency in Hong Kong’s banking system surged to 408 billion yuan by the end of February, nearly four times more than in July last year.
Hui Xian’s sole asset is the Oriental Plaza, a complex in Beijing controlled by billionaire Li Ka-shing (李嘉誠), Hong Kong’s richest man. Two billion units in the trust, or 40 percent, were sold to investors.
Analysts blamed the lukewarm response to the IPO on the Hui Xian’s relatively low yield of 4.26 percent.
“You can buy a lot of REITs in Hong Kong that yield much more than that,” said Jackson Wong (黃志陽), a vice president at Tanrich Securities (敦沛證券), referring to real-estate investment trusts.
The remaining 60 percent of the trust will be owned by six companies, including Cheung Kong (Holdings) Ltd (長江實業) and Hutchison Whampoa Ltd (和記黃埔), both controlled by Li, and Bank of China Ltd (中國銀行).
Oriental Plaza consists of a shopping mall, office and apartment towers and the Grand Hyatt Beijing hotel.
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