Hui Xian REIT, which is backed by the Oriental Plaza in Beijing, raised 10.48 billion yuan in Hong Kong's first yuan-denominated IPO. provided to China Daily

Billionaire Li Ka-shing's Hui Xian Real Estate Investment Trust raised 10.48 billion yuan (1.1 billion euros) in Hong Kong in the first yuan-denominated initial public offering outside the mainland.

Hui Xian REIT, part of Cheung Kong Holdings Ltd, issued two billion shares priced at the lower end of an indicative range of 5.24 yuan to 5.58 yuan per share. The forecast yield to investors is 4 percent to 4.26 percent for the period from April 29 to June 30.

The IPO was split, with 80 percent sold to overseas institutional investors and hedge funds and 20 percent to retail investors in Hong Kong. Though the REIT has attracted strong demand from institutional investors, orders from the retail sector are falling far short of expectations, said the International Financing Review.

The lukewarm response toward the IPO is a matter of yield return. The yield of the REIT is forecast to be lower than locally listed REITs, said Jonas Kan, head of Hong Kong research at Daiwa Securities Capital Markets.

Dickie Wong, a research manager at Kingston Securities, said that the market response has been slow because REITs tend to trade less actively than other stocks as investors hold them for their yield, making them less attractive to retail buyers seeking quick gains.

According to Hong Kong Monetary Authority figures, yuan deposits in Hong Kong amounted to 407.7 billion yuan at the end of February, an increase of 10 percent from a year earlier, with authorities and analysts expecting the amount to rise to about a trillion yuan by the end of this year.

Though yuan deposits have tripled over the past 12 months, liquidity remains a major concern for launching yuan products such as IPOs, says Kelvin Lau, regional economist at Standard Chartered Global Research.

"We don't think the number of yuan IPOs will surge after Hui Xian. It will take some time from a few to many. Actually it may follow the path of yuan bonds, which did not quite gather pace until last year," Lau says.

However, some analysts say that the landmark transaction would pave the way for the yuan to become a global currency because it will help lure in overseas funds and increase the liquidity of the yuan in Hong Kong, which in turn will boost the city's aspirations of becoming an offshore renminbi center.

"The future is for the renminbi to become a global currency and this is definitely a milestone for Hong Kong," an unnamed banker involved in the Hui Xian transaction told The Economic Observer. "The IPO may encourage other companies to launch similar products to tap into the bulging yuan deposits in Hong Kong."

Joseph Chang, vice-president of SCM Strategic Capital Management Asia, a private equity investment company based in Hong Kong, says the Hui Xian IPO could prove a good testing ground for the amount of interest in yuan-denominated investments from overseas.

"I think this will serve as an experiment for a whole slew of other yuan-denominated equity products coming into the market and from what I have read the retail subscription has not been that crazy," he says. The response to the placing has so far been lukewarm from retail investors.

"It is unlike during the pre-1997 'red chip' bubble or the Internet bubble in 2000 when you would have 500 or 1,000 times oversubscription," he says.

Anthony Bolton, who runs the Fidelity China Special Situations fund, which had a high profile launch last year, says offers such as this one in the yuan could provide a significant boost to Hong Kong, which is already a gateway for overseas investors. "I am pretty positive about the internationalization of the yuan and the effects it is going to have on financial companies in Hong Kong and I think we will see a lot more (yuan) bond issues."

Bolton adds, however, some of the advantages of investing in a yuan-denominated investment vehicle were not all that tangible.

"You might say, to some extent it is a misconception (the advantages of investing in a yuan-denominated investment) because you could buy shares of mainland companies in Hong Kong dollars and get exactly the same exposure but I think it is not the way a lot of retail investors think," he says. "The interesting thing is whether this IPO would have happened if it weren't denominated in yuan, so it might give us a new structure of investment."

Martha Wang, portfolio manager for Fidelity International, who is also based in Hong Kong, was more skeptical and says it would not make a difference to how she invests.

"Whether or not it is yuan-denominated wouldn't influence the investment decision or not, given that what matters is the underlying business. Even if it was Hong Kong dollar denominated you would still get exposure to the China dynamic," she says.