Futu aims to raise US$1.9 billion in follow-on stock sale in New York as Tencent-backed broker taps investors’ penchant for punting on IPOs

Georgina Lee
·3-min read

Online brokerage platform Futu Holdings has launched a follow-on sale of new shares on Nasdaq to raise about US$1.9 billion, according to a person familiar with the transaction, as it seeks new funding to expand its margin financing business amid cutthroat competition.

It is the Shenzhen-based firm second fundraising in the US equity market in eight months, after Futu raised about US$314 million in August last year, hot on the heels of its US$90 million initial public offering in March 2019. Year-to-date, Futu’s share price has more than quadrupled, rising 16.3 per cent on Monday to US$177.92 in New York.

The brokerage, whose name means “path to wealth” in Chinese, offers online trading service of Hong Kong, Chinese and US stocks. It is selling 9.5 million American depositary shares, with an overallotment option to offer another to 1.43 million shares to meet strong investors demand. The final offer price will be determined on Wednesday.

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Bank of America and Haitong International are joint bookrunners of the deal. They were not immediately available for comment.

Futu Holdings founder and chairman Leaf Li Hua poses for a picture at the Headquarter of Futu Holdings in Shenzhen. 09DEC20 SCMP/ Iris Ouyang
Futu Holdings founder and chairman Leaf Li Hua poses for a picture at the Headquarter of Futu Holdings in Shenzhen. 09DEC20 SCMP/ Iris Ouyang

“The COVID-19 pandemic has further transformed the industry landscape and created new opportunities for online brokers amid lockdown and other restrictive measures,” Futu said in its filing to the US Securities and Exchange Commission (SEC) on Monday. “A growing number of investors have moved from offline channels to online platforms for trading activities.”

Futu’s 2020 profit jumped nine-fold to 1.18 billion yuan (US$181.7 million), boosted by four consecutive quarters where its net income at least tripled, according to the company’s financial results under general accounting standards. It reported 1.4 million registered clients as of December, of which about a third were paying customers.

Operated under the brand name “Futu NiuNiu,” or “bullish path to wealth” in a nod to its bull mascot, Futu said it is focused on servicing younger traders, with the average age of its clients at 36 years. The broker’s largest investor, with a 30.2 per cent stake, is Tencent Holdings, China’s dominant operator of social media and the world’s biggest games publisher.

Hong Kong ranked second in the global IPO market in the first quarter after Nasdaq, recording 32 new listing and raising an all-time high HK$132.8 billion in proceeds for new issuers. In January, the exchange helped China’s short-video platform, Kuaishou Technology, raised US$5.4 billion as the world’s biggest IPO during the first quarter.

Hong Kong was the world’s largest IPO market in seven of the past 12 years, according to data from the Hong Kong stock exchange. Banks and brokerages jostled to win a piece of IPO margin financing business, and interest rate for mega deals could often drop to below 1 per cent per annum.

But that did not benefit smaller brokers, as they are finding it increasingly difficult to survive as revenue from commission get squeezed and those without deep pockets could ill afford to invest in technology to attract business from younger retail traders placing orders via mobile devices. The aggregate market share for small brokers in Hong Kong dropped to 7.1 per cent in June 2020, from 39.8 per cent in 1999, Futu said, citing data from the city’s bourse.

“Big players have been taking away market shares from small brokers over time, in line with trend of the industry consolidation observed elsewhere in the world,” Futu said in its filing.

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