CHINESE retailer Beijing Hualian Group (BHG) is looking to list its malls in a Singapore real-estate investment trust (Reit) worth S$597 million.
It is looking to place out 150.1 million units under the placement tranche and public offer at S$0.80 per unit, valuing the initial public offering at S$120 million.
If successful, this would be Singapore's first mainboard listing this year - though whether it comes to fruition remains a question mark, especially after weak demand led Canadian insurer Manulife Financial Corp to indefinitely postpone listing its office Reit in July.
Talk of another listing of China's Kailong Reit has also died.
The sponsor of the latest Reit aspirant is Shenzhen-listed Beijing Hualian Department Store Co. It has 29 operating malls and 14 others under development in China.
Of these, it has identified 12 which could be offered to the Reit as future pipeline assets. Their locations range from sites in first-tier Beijing to second-tier Wuhan and Hefei and cities in Inner Mongolia.
Notably, the strategic investor, a Singapore-incorporated unit of BHG which has agreed to a 30.1 per cent stake in the Reit, has opted not to receive distributions for its units until 2020, to show its commitment to the long-term growth and development of the Reit.
With this undertaking, the distribution yield will increase from between 4 and 4.5 per cent to between 5.7 and 6.3 per cent.
Analysts were quick to point out that the yields, even with the sponsor waiver, pale in comparison to those of its blue-chip peers such as CapitaLand Retail China Trust and Mapletree Greater China Commercial Trust listed here, which are yielding between 7.6 and 7.8 per cent.
But BHG Retail Reit's saving grace lies in its strong cornerstone investors. It is backed by state-owned China Hi-Tech Holding, China Life Insurance, China Merchants Bank Asset Management and Chanchai Ruayrungruang, the Thai-Chinese chairman of Reignwood Group and Red Bull Group China. The cornerstone investors have agreed to subscribe for 169.7 million units, representing a 34.4 per cent stake. BHG, including its subsidiaries, has agreed to subscribe for up to 172.9 million units, representing a 35.1 per cent stake if the over-allotment option is not exercised.
The remaining units are for institutional placement and public offer.
The funds raised will enable the Reit to acquire five malls from the sponsor that would make up its initial portfolio; they are in the five cities of Beijing, Hefei, Chengdu, Dalian and Xining.
If all goes well, the public offer will open on Dec 2 at 6pm and close on Dec 7 at noon. Trading will begin on Dec 11 at 2pm. DBS is handling the deal.
But some analysts are skeptical that BHG can pull off the feat in this tepid market. They questioned its timing, which comes just before the Federal Open Market Committee meets on Dec 15 to 16, a possible time for interest rates to be raised.
One analyst said: "Couple that with the Chinese government's own easing. It is now no longer a clear direction of a one-way appreciation path for the renminbi."
He pointed out other misgivings: "From the Reits we speak to that have Chinese exposure, it also seems quite tough to hedge your renminbi cashflow because it's not as liquid as other easily transacted international currencies. The cost of hedging is also not cheap. So forex could be an issue because investors would be worried that if they're taking the dividends in Singapore dollars, then every quarter, they would be exposed to forex risks."
Low Xin Yan, a property-equities analyst at asset-management firm Henderson Global Investors, said: "Those without a proven track record and strong management may struggle in this market.
"China commercial is not a favoured asset class right now, given supply pressure, particularly in certain Tier 2 or 3 cities.
"Risk premiums on S-Reits with overseas portfolios are generally higher, particularly with the additional volatility from forex."