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Greater expectations: Asia's yield IPO issuers wake up to reality

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By Rev Hui
17 Jun 2014

Things have started looking up for Asian yield play investors this week, as Jinmao Investments started marketing a HK$3.39bn ($437m) hospitality business trust that will pay out up to 9%. If it goes ahead, it will be the first high-yielding IPO in the region since January, as issuers finally wake up to changed investor expectations.

This year has been a dire one for issuance in the Asia ex-Japan yield stock sector. There has only been one such listing in Singapore, which is Asia’s centre for IPOs of business trusts and Reits. Hong Kong has also only managed a single deal, although that had the virtue of being the world’s largest IPO so far this year – Hong Kong Electric Investments’ HK$24.13bn transaction.

Both deals priced in January. The region’s only other yield play was Thailand’s Siri Prime Office Property Fund in March. But at just Bt1.7bn ($53m), it was hardly the sort of size to set pulses racing.

This is not for lack of trying. South Korea’s Lotte Shopping tried to spin off some of its assets into a listing on the Singapore Exchange in March.  But the trade failed to take off. Investors apparently thought little of the 6%-7% yield that Korea’s largest shopping mall operator was planning to offer.

Last year — and certainly before any serious talk of rate rises — that kind of yield would have made a deal fairly simple to wrap up. Low benchmark interest rates meant the yield sector was absolutely booming. Investors are thinking differently now, moving their yield demands in line with their expectations on rates. On Lotte, for instance, the buyside indications were that a payout of at least 8% would be needed.

So far issuers have been slow to adjust their ambitions accordingly, hence the dearth of issuance. But the appearance of a new name, Jinmao, suggests things are beginning to change.

A hospitality business trust carved out of Chinese real estate firm Franshion Properties, Jinmao is offering investors yields of 8.5%-9% for 2014. At first glance that looks only slightly higher than the 8.2% yield on closest comparable Langham Hospitality Investments. But Jinmao is offering higher quality assets, so the difference is greater than it appears.

Langham consists of only three hotels – Eaton, Langham Place and The Langham – all of which are in the Kowloon area of Hong Kong. Investors putting their money in Jinmao, however, will be gaining exposure to assets in most of China’s top tier cities and tourist hotspots, including The Westin Beijing, JW Marriot Hotel Shenzhen, the Ritz-Carlton Sanya and the Grand Hyatt Shanghai.

Any sign that issuers are starting to shift their expectations is encouraging. Accordia Golf and India’s Larsen & Toubro are both talking to investors about spin-offs on the Singapore Exchange. L&T might even pay out more than 10%.

If it goes well, Jinmao's deal could prove to be the springboard for a revival of yield plays. The IPO pipeline is stacking up, with names such as Keppel T&T Reit ($400m) and F&N Hospitality Reit ($500m) waiting for their moment. And if issuers can manage to suit their demands to those of the market, a forgotten asset class could well be in line for a second half comeback.

By Rev Hui
17 Jun 2014