Ara, an affiliate of Cheung Kong Group in Singapore, wants to list assets through a Hong Kong real estate investment trust called Dynasty Reit. The deal, which has been on the cards for some months, is still in its infancy. But bankers working on it hope to push it through this year.
As the first renminbi IPO in Singapore, it will have some scarcity value. Hui Xian Reit’s renminbi IPO in Hong Kong certainly did, getting away with a 4.3% dividend yield, far lower than the more standard 6% offered by Reits in Hong Kong and Singapore.
But liquidity concerns and weakening renminbi appreciation expectations meant that investors soon realised their prized debut renminbi equity was overpriced. The Reit is now trading 28.8% below its IPO price.
Cheung Kong is unlikely to be quite so able to push on pricing. But it will certainly try. It will still have the bragging rights of being the first to tap the Singapore market with a renminbi deal — and for this it will see some benefit in price. Renminbi deposits in Singapore are the second or third largest outside China, according to most analyst estimates, and renminbi deposit rates in Singapore do not have the brightest future — so there will be some natural interest from holders to put their money into an interest-making product.
But the deal will not just need demand from renminbi holders. It is set to be structured with a Singapore-dollar denominated retail tranche. One banker working on the deal reckons that obtaining renminbi could be "troublesome" for many retail buyers, so this will make their involvement in the offering easier and more likely.
While the renminbi’s story has been somewhat tainted by its recent failure to appreciate against the dollar, its allure as the next reserve currency will still attract retail investors in the city-state. After all, Singapore did make a lot of noise positioning itself as the next offshore renminbi hub last year.
The structure is a clever move, because retail investor participation will not only directly boost demand but could also do so indirectly. Hedge funds, for instance, will see strong retail presence as providing some handy liquidity — and an aftermarket exit route.
In spite of all that, the deal size — up to $700m — is still a limiting factor and is likely to keep a chunk of the buyside away. For that reason, hopes are not high among bankers of a spectacular aftermarket. It's undoubtedly a brave decision by Cheung Kong, but being the first to bring a new product could still prove to be a smart move.