Retail buyers flood China's Kuaishou HK IPO with $162 bln offered (updated)

China Everbright

29/01/2021 10:43

(Adds oversubscription rates)
    By Scott Murdoch, Julie Zhu and Kane Wu
    HONG KONG, Jan 29 (Reuters) - China's Kuaishou Technology
 1024.HK  raised $5.4 billion from its IPO, the top of the
range, with offers from retail investors reaching a mammoth $162
billion, nearly half of it backed by margin loans, three people
with knowledge of the matter said.
    Combining retail and institutional demand, the offering saw
total bids worth about $370 billion, equivalent to the gross
domestic product of Hong Kong, for the 8.9 percent of the online
video site on offer. The shares were priced at HK$115 ($14.83),
two of the sources said, making the company worth $60.9 billion.
    The huge demand comes amid growing fears about an asset
bubble, with amateur investors boosting the price of assets
ranging from cryptocurrencies to new stock market listings.
    Those concerns, triggered by a sharp surge in U.S. videogame
retailer GameStop  GME.N  and a few other stocks, have led some
brokerages globally to raise margin requirements or stop
offering leverage for buying securities.  urn:newsml:reuters.com:*:nL1N2K30QK
    Retail investors bid for more than 1,200 times the amount of
  Kuaishou shares on offer for them as the book closed on
Friday, said the sources, who declined to be named as the
information had not yet been made public.
    The over-subscription rate means the mom-and-pop investors
alone bid for $162 billion worth of stock, while the offering
had earmarked just 2.5% of the capital raising, or $135 million
worth of stock, for them.
    As per Hong Kong's clawback rules, the retail portion of the
IPO will now be enlarged to 6% due to the demand, according to a
term sheet for the deal. The institutional portion of the book
was covered 55 times in comparison, two of the sources said.
    Brokerages attributed the demand for Kuaishou initial public
offering (IPO) of shares as the reason for the Hang Seng Index
 .HSI  falling 0.9% on Friday as investors dumped stocks to free
up cash.
    Kuaishou will debut on the Hong Kong stock market on Feb 5.
    The red hot demand for Kuaishou shares from retail investors
pushed margin financing applications to buy the company stock
past HK$500 billion at just the top banks and brokers. 
    Individual investors in Hong Kong, which has among the
highest retail trading levels in the world, are renowned for
borrowing heavily as larger bids boost the chances of being
allocated shares in an IPO.
    Investors rely on a first-day share price rise to pocket
gains after paying back the loan, but face a huge risk if a
company's stock tanks on debut.      
    "There are the same risks here that we are seeing globally
with things like GameStop, people get carried away and lose
rationality," GEO Securities chief executive Francis Lun said.
    "The banks are fuelling this frenzy too. They put all their
cash reserves into this IPO frenzy. There are no other areas
where they can generate HK$400 billion worth of loans so quickly
and they earn interest from that."
    The company did not respond to a request for comment on the
pricing or the oversubscription rates. 
    HSBC  HSBA.L , the largest bank in Hong Kong, expanded its
margin financing quota for the deal from HK$150 billion to
HK$200 billion after strong demand, a spokeswoman said.
    Bank of China Hong Kong  2388.HK  offered HK$200 billion to
investors, a spokeswoman said. Brokerage Bright Smart Securities
 1428.HK  had applications for HK$43.9 billion and Haitong
International Securities  0665.HK  HK$26.8 billion.
    Everbright Sun Hung Kai securities strategist Kenny Ng said
the surging popularity of digital companies during the COVID-19
pandemic had fueled retail investor demand.
    "The whole sector performance of new economy stocks may be
the main incentive for the hot demand to Kuaishou."
    ($1 = 7.7528 Hong Kong dollars)

 (Reporting by Scott Murdoch, Kane Wu and Julie Zhu; Editing by
Sumeet Chatterjee and Richard Pullin)
 ((Scott.Murdoch@thomsonreuters.com;))