HK brokers ready war chest for mom-and-pop bidding frenzy in Ant's mega IPO

Bright Smart Securities & Commodities

23/10/2020 05:20

By Scott Murdoch and Donny Kwok
    HONG KONG, Oct 23 (Reuters) - Hong Kong's brokerages are
readying billions of margin-lending dollars to tap an expected
surge in retail demand for China's fintec giant Ant Group's
likely $35 billion dual-listing in Hong Kong and Shanghai in the
next few weeks, industry officials said.
    Margin lending, or the amount brokers can lend to individual
investors to purchase shares, has been a big business in Hong
Kong in recent years with a large number of equity floats luring
retail buyers.
    Hong Kong had 851,157 margin lending accounts with total
loan volume of HK$161.8 billion ($21 billion) in the first half
of 2020, according to the city's Securities and Futures
Commission (SFC), up sharply from 601,842 at the same time last
year.  
    The expected surge in demand for margin financing for the
Hong Kong tranche of Ant's initial public offering (IPO), poised
to be the world's largest ever, underscores robust retail
interest in the deal due to be launched next week.  urn:newsml:reuters.com:*:nL4N2HC34G
    Ant, which operates China's biggest mobile payments platform
Alipay, is backed by Chinese e-commerce group Alibaba Group
Holding  BABA.N .
    Bright Smart Securities  1428.HK , one of the city's largest
brokerages, said it would lend up to HK$50 billion - one of the
firm's largest offerings - for the Ant IPO despite looming
markets uncertainty due to the approaching U.S. election. 
    "We will make sure our interest rate will be the lowest
among our peers," chief executive Edward Hui told Reuters,
adding retail investors would only have to put up 5% as a
deposit to take on a margin loan to buy Ant shares.
    Another Hong Kong brokerage UOB Kay Hian has earmarked HK$20
billion for Ant IPO margin financing, a spokeswoman said.
    Retail investors in Hong Kong - from taxi drivers to junior
professionals - borrow heavily as larger bids boost the chances
of IPO share allocation, and they look to benefit from a
first-day pop.
    The lending could be for 6-7 days and is lucrative for the
brokerages as they earn commission on executing trades as well
as interest income from margin financing.
    "We see in Hong Kong that retail investors are always keen
to buy into IPOs, it's almost a form of gambling and there is a
strong trend for them to only hold on to them for a day or two,"
the Hong Kong Institute of Investors' chairman Ricky Tam said.

    PRESSURE ON RATES 
    Retail brokers said the margin interest rates would be set
closer to the IPO's launch date. The strong demand could raise
the short-term Hong Kong Interbank Offered Rate (HIBOR).
    The two-week Hong Kong Interbank Offered Rate  HIHKD2WD= 
rose for a fourth straight session on Thursday to its highest in
more than seven weeks.
    The retail bidding frenzy poses some risks for the
brokerages and their clients, especially on any heightened
market volatility in an economy already badly hit by the
pandemic as well as last year's anti-governments protests.
    "The risk for subscribers is that they are paying a lot in
commissions to try and get allocations, they are paying interest
and it's likely the shares will be priced at the top of the
range," GEO Securities chief executive Francis Lun said.
    "That could leave very little room for profit."

 (Reporting by Scott Murdoch and Donny Kwok in Hong Kong;
Editing by Sumeet Chatterjee & Shri Navaratnam)
 ((Scott.Murdoch@thomsonreuters.com;))