Hong Kong stockbrokers say they plan to offer lower interest rates to retail investors to buy shares in Ant Group’s upcoming jumbo initial public offering, after almost HK$100 billion (US$12.9 billion) of capital flowed into the city over the past four weeks.
Overseas investors are piling into Hong Kong ahead of Ant Group’s IPO, as they jostle for a piece of the offering. More than HK$98.27 billion has flowed into the city since September 14, forcing the city’s de facto central bank to intervene 25 times in currency markets to try to weaken the Hong Kong dollar.
Even after 25 interventions over the past 30 days, the Hong Kong dollar was trading at 7.7501 on Wednesday afternoon, which is close to the top end of a trading band with the US dollar that required the HKMA to intervene again. Hong Kong‘s dollar is pegged to the US dollar at 7.8, and the HKMA will intervene to make sure it trades between 7.75 and 7.85.
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The authority did not break down the origins of the inflow, but local brokers believe it is swollen by international investors preparing to participate in Ant Group’s IPO.
The capital inflows have boosted the so-called ‘Aggregate Balance’, the sum of commercial banks’ clearing and reserve accounts held at HKMA, to HK$304.57 billion, six times their level before the HKMA’s intervention in April.
The excess liquidity has helped lower the cost of funds, with the one-week interbank offered rate falling to 0.1 per cent compared with 2 per cent in March.
The low-interest rate is good news for the over 600 stockbrokers who are busy talking with their bankers to get funding for lending to Hong Kong retail investors so that they can subscribe to Ant’s IPO, said Gordon Tsui, chairman of Hong Kong Securities Association, an industry body for local brokers in the city.
“Should the current low-interest-rate stay, which is likely due to the continuous capital inflow, it will allow investors to borrow the funding at a lower cost than earlier this year,” he said.
Tsui expects each brokerage house will get about HK$50 million to HK$10 billion from banks, while some big ones can rake in HK$50 billion or more. In Hong Kong, many retail investors like to buy IPOs using a type of leverage called margin financing.
He estimates brokers may offer an interest rate roughly between 1.5 per cent to 3 per cent for Ant offerings, which will be lower than some other deals at about 1.8 per cent to 3.8 per cent earlier this year and over 4 per cent last year.
“At such levels, the interest rate is almost at the lowest level in a decade. The low cost of funding will encourage more retail investors to buy in the Ant IPO, which is expected to be the biggest IPO on record,” Tsui said.
Hong Kong retail investors may need to pay one extra day of interest rate for Ant, as the offering may be settled in a six-day cycle instead of normal five days, to bring the Hong Kong tranche of the offering in line with the Shanghai tranche.
“Investors will not mind about paying one more day of interest rate. They are more concerned about getting an allocation of shares in popular IPOs,” Tsui said.
Bright Smart Securities, one of the biggest local brokers active in IPO margin financing, plans to prepare up to HK$50 billion for customers to subscribe Ant‘s offering, according to Edmond Hui, chief executive of the brokerage firm.
“We will make sure our interest rate will be the lowest among our peers as we want to make sure our customers can subscribe to Ant‘s IPO at a low cost,” Hui said.
Tens of billions of dollars of hot money – short-term investment cash chasing quick returns – flowed into the city since April as investors sought to invest in red hot IPOs, such as secondary listings by the likes of JD.com, NetEase and Yum China, the operator of KFC and Pizza Hut in the mainland, as well as Nongfu Spring’s offerings in August.
Ant Group, the operator of mobile payments app Alipay and an affiliate of Alibaba Group Holding, filed for a dual IPO in Hong Kong and Shanghai near the end of August. Alibaba is the owner of the South China Morning Post.
Ant Group received approval on September 18 from the stock listing committee of the Star Market, Shanghai‘s Nasdaq-style stock market, and is awaiting approval from the China Securities Regulatory Commission as well as Hong Kong Exchanges and Clearing.
Ant is homing in on a valuation of US$230 billion to US$250 billion, according to some brokers’ research reports. It is also likely to break the record held by Saudi Aramco’s US$29.4 billion IPO last December for the world’s largest stock market debut.
A total of 104 companies raised a combined HK$211.36 billion in Hong Kong in the first nine months this year, an increase of 58 per cent from last year, making Hong Kong the world’s second most popular listing destination.
More from South China Morning Post:
- Hong Kong exchange operator expects deluge of new listings, to digitise paperwork
- Ant Group gets the green light for mega IPO in Shanghai’s Star Market as China pulls out all stops to help tech champions raise funds
- Ant Bank launch marks another milestone for Ant Group’s expansion in Hong Kong ahead of mega listing
- Ant Group’s blockbuster dual listing tilts balance in US-China rivalry, helping Hong Kong, Shanghai close in on Nasdaq’s lead
This article Hong Kong brokers tout lower costs for retail investors seeking to buy into Ant Group’s IPO after US$12.9 billion of inflows drags interest rate down first appeared on South China Morning Post