Retail loans for China's Kuaishou HK IPO surge past $60 bln amid GameStop frenzy

China Everbright

29/01/2021 06:11

By Scott Murdoch
    HONG KONG, Jan 29 (Reuters) - China's Kuaishou Technology
 1024.HK  priced its Hong Kong IPO at the top of the range to
raise $5.4 billion, three sources said, as retail investors
swarmed the offering, depositing more than $60 billion in a bid
to secure a small slice of the stock.
    The huge demand for the online video site from retail
investors 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
    In Hong Kong, however, red hot demand for Kuaishou shares
from retail investors pushed margin financing applications to
buy the company stock past HK$470 billion ($60.6 billion) at
just the top banks and brokers.
    Small investors, who have to deposit the funds up front,
were competing for just 2.5% of the capital raising, or $135
million of stock, but this was expected to be enlarged to 6% due
to the demand, according to a term sheet for the deal.
    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.
    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 told
Reuters.
    "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 ($52 billion) worth of
loans so quickly and they earn interest from that."
    Kuaishou's IPO was priced at HK$115 apiece, the top of its
marketing range, on Friday, the final day of book-building, said
two sources with direct knowledge of the matter. They declined
to be named as the information had not yet been made public. 
    The company did not respond to a request for comment. 
    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 = 7.7527 Hong Kong dollars)

 (Reporting by Scott Murdoch in Hong Kong; additional reporting
by Kane Wu and Julie Zhu; Editing by Sumeet Chatterjee and
Richard Pullin)
 ((Scott.Murdoch@thomsonreuters.com;))