Hong Kong Link IPO raises US$2.5 billion

Hong Kong's Link REIT raised HK$19.8 billion (US $2.5 billion), after the government priced the world's biggest IPO of a property trust at the top of the indicated range on the back of keen institutional demand, people familiar with the deal said on Saturday.
The government's second attempt to sell shopping malls and car parks through the territory's first real estate investment trust (REIT) has attracted institutional orders worth US $33 billion, or 18.5 times the portion initially earmarked for them.
The city's Housing Authority sold 1.926 billion shares in the Link Real Estate Investment Trust at HK$10.30 each. The size of the deal will grow to HK$22 billion if an overallotment option is exercised, which is expected.
The newly formed Link REIT will use the proceeds and bank borrowings of HK$12.2 billion to buy 180 retail and car park properties from the Housing Authority.
The deal attracted less demand than during last year's failed deal due to lower offered yields amid rising interest rates.
The territory's first REIT attracted HK$108 billion worth of orders from individual investors - only 40 percent of last year's demand. While the institutional orders were about 85 percent of last year's.
A year ago, the Link REIT drew a record HK$280 billion worth of orders from retail investors before the IPO was scuppered by a last-minute legal challenge from an elderly public housing tenant.
A lower yield is on offer this time because the properties have appreciated by about 10 percent and the Link REIT has had to increase its debt by 41 percent in order to pay for them.
At the IPO price, the Link REIT will pay an annualised yield of 5.53 percent in the year ending March 2005, or 6 percent in 2006, versus a 6.65 percent offered last year.
Retail investors will receive higher yields of 5.82 and 6.31 in 2006 and 2007, respectively, as they are entitled to a 5 percent discount on the price of IPO shares.
The Link expects its expense ratio to fall to 42 percent in 2006 from 48 percent in 2005. By comparison, the Fortune REIT, which holds Hong Kong properties but is traded in Singapore, has a lower expanse ratio at about 30 percent.