The world's first yuan-denominated IPO outside mainland China has drawn a tepid response from Hong Kong investors, a source told AFP, raising concerns about the keenly-watched market.

Billionaire Li Ka-shing's Hui Xian Real Estate Investment Trust (REIT) was priced at the lowest end of the expected range of 5.24-5.58 yuan per share, raising 10.48 billion yuan ($1.61 billion), said a person familiar with the situation, echoing other reports that the share sale had failed to spark huge interest.

The response may be a sign that Hong Kong - a semi-autonomous Chinese territory which has been a test bed for Beijing's bid to internationalise the currency - may struggle to become a trading hub for the yuan.

The IPO opened for sale in Hong Kong last week, in a landmark deal many hoped would help set the yuan on the path to becoming a global currency, challenging the US dollar's dominance.

The offer saw the trust sell two billion units, or 40 percent of the property firm.

On Wednesday, underwriters of the property trust - BOC International, Citic Securities and HSBC - priced the IPO at the bottom of the range, a week before shares start trading in Hong Kong, the source said.

The institutional tranche of the offering was fully subscribed, the source added, while a 20 percent share of the offering set aside for retail investors was oversubscribed two and a half times.

Analysts told AFP on Thursday that the lukewarm response reflected a lower investment appetite for REITs, which are often considered long term investments.

"Hong Kong investors do not have too big of an appetite for investment products that focus on stable income," Ben Kwong, chief operating officer of KGI Asia told AFP on Thursday.

"They are looking for quick short term returns - so REITs are not such an attractive option to them."

He also said Hui Xian, as the first yuan-denominated product to join the Hong Kong bourse, could suffer from low liquidity when it starts trading on April 29.

"This would be a more attractive investment option if it had high liquidity and better growth prospects. But as it stands, its room for growth is not so big," he said.

Kenny Tang, general manager for AMTD Financial Planning, echoed Kwong, adding weak interest from retail investors might be due to worries about a lack of yuan financing from banks.

"Banks cannot provide yuan financing for retail investors, which can be another factor in the weak investor interest," he said, as borrowing to invest in IPOs is a common retail strategy in the city.

In 2009 China approved using the yuan to settle cross-border trade with Hong Kong, and Beijing has twice issued yuan-denominated bonds in the financial hub over the past year.

Yuan deposits in Hong Kong surged to 407.7 billion yuan at the end of February, up from 370.6 billion yuan in January, as investors bet on an appreciation in the Chinese currency.

Hui Xian's listing plan comes a month after Li, Hong Kong's richest man, raised $5.5 billion from a Singapore listing of Hutchison Port Holdings Trust, which controls deepwater ports in China and Hong Kong.

The REIT is tied to the Oriental Plaza, a sprawling 100,000 square metre facility in Beijing's prime Wangfujing Street which includes a mall that commands some of the city's highest rental rates.

channelnewsasia.com