China Merchants breaks REIT listing drought for HK

Hong Kong is set to welcome its first listing of a real estate investment trust in five years, with the China Merchants Commercial REIT seeking to raise up to $400 million.

The REIT, which owns five commercial and office properties in Shenzhen, wants to expand in the Greater Bay Area which has a population of about 70 million and includes Hong Kong, Macau and Guangdong province.

It plans to issue 750 million units priced between HK$3.42 and HK$4 each, according to a term sheet seen by Reuters. That would raise $330 million to $380 million.

A greenshoe option of 5% of units outstanding could lift the deal value to $400 million. At the top end of the range and including the greenshoe, the REIT would have a market value of around $575 million.

Singapore has long been seen as the Asian hub for REITs, and Hong Kong has just 11 listed. The last Hong Kong REIT listing was December 2014, when Dalian Wanda raised $4 billion which was the largest on record for the city, according to data from Refinitiv. China Merchants Commercial REIT executives started briefing investors in Hong Kong on Thursday and will shift to Singapore on Friday ahead of the deal progressing next week.

Sumeet Singh, head of research and IPOs at research firm Aequitas, also said Hong Kong investors tended to prefer bigger fry.

"Hong Kong has always been a growth market, with investors looking for the next Tencent, Meituan or now even Alibaba. A REIT is just not as exciting in terms of future prospects," he said in research published on the Smartkarma platform.

The China Merchants REIT bookbuild started on Thursday and the units are expected to be priced on Tuesday, with trade due to start on Dec. 10. The deal was first proposed in September and put on hold while financial market sentiment improved.

Hong Kong's IPO market has seen $21.8 billion raised so far this year, on par with the New York Stock Exchange and just behind the Nasdaq's $23.6 billion.

Citigroup is leading the deal as the sole listing agent and is the joint global co-ordinator alongside China Merchant Securities and DBS.