* Deal would be second investment trust in Hong Kong
* Cheung Kong/Hutchison to hold under 30 pct of hotel trust
* IPO cash for buying hotels from Cheung Kong/Hutchison
(Adds details of trust, comments, previous Hong Kong trustlisting)
HONG KONG, Oct 12 (Reuters) - Hong Kong tycoon Li Ka-shing'sproperty firm Cheung Kong (Holdings) Ltd plans to listits extended stay hotel business in a deal that could raise upto $800 million, IFR reported on Friday, citing sources withknowledge of the plans.
The offer would be only the second by an investment trust inHong Kong, which competes for listings with Singapore wherebusiness trust IPOs are common. The deal is slated to take placebefore the end of the year, added IFR, a Thomson Reuterspublication.
Initial public offerings (IPOs) in Hong Kong have plungedmore than 80 percent in 2012 from 2011, with investors ignoringnew issues after being burnt by the poor performance of severallarge listings last year.
The proposed deal would be similar to a real estateinvestment trust (REIT), offering investors fixed returnsthrough annual yield payments. Investment trusts in Hong Kongare only allowed to invest in one industry, unlike in otherjurisdictions.
The hotel offering follows the $1.2 billion IPO last year ofHKT Trust , the telecom business spin-off of PCCW Ltd. HKT Trust has soared nearly 50 percent since theoffering, compared with a 19.6 percent gain in the benchmarkHang Seng index .
"This IPO is a good decision," said Alvin Cheung, associatedirector at Prudential Brokerage in Hong Kong. "The market isunstable because of the effects from Europe and some investorsare afraid of the market, so to diversify and for prudence, theywill look to put money in some stable or high yield investmenttool."
Business trusts are popular with companies because theyallow them to raise cash without relinquishing control. In abusiness trust model, the trust sells units to investors, butcontrol of the business is left with the trustee manager, who isusually an affiliate of the company establishing the trust.
Cheung Kong said in a securities filing the listingapplication for the investment trust was submitted on Thursday.The company plans to spin off the extended stay hotel businessinto Horizon Hospitality (Holdings), which will own four hotels,two in Kowloon and two in the New Territories, which togetherhave 4,833 suites.
Extended stay hotels typically offer suites that are largerthan hotel rooms and facilities such as kitchens.
The trust will list share-stapled units, also known asstapled securites. Immediately following the completion of thetransaction Cheung Kong and its telecoms-to-ports conglomerateaffiliate, Hutchison Whampoa Ltd , will in aggregatehold less than 30 percent of the trust. Cheung Kong will retaincontrol of the trustee manager, called Magnificent Merits Ltd.
Each share-stapled unit comprises a unit of HorizonHospitality Investments, a preference share in HorizonHospitality (Holdings) and an interest in ordinary shares ofHorizon Hospitality (Holdings) held by the trustee manager.
Bank of America Merrill Lynch , DBS andStandard Chartered were hired to handle the investmenttrust offering, IFR added.
(Reporting by Fiona Lau of IFR and Alison Leung; Writing byElzio Barreto; Editing by Mark Potter and Richard Pullin)
Keywords: CHEUNGKONG HOTELS/