Overwhelming response to Kuaishou Technology’s US$5.4 billion Hong Kong initial public offering (IPO) prompted underwriters to close the institutional order book two days ahead of schedule, as global funds jostle for shares in the world’s second-largest short video platform.
The retail portion, equivalent to 9.1 million shares or a tiny 2.5 per cent of the global offering, was overbought by 210 times on Tuesday, the first day of a weeklong subscription period ending Friday. The ratio is based on a calculation by South China Morning Post using the HK$226 billion (US$29.2 billion) of margin loans extended by various brokers in the city to buy the shares.
Inquiries and early bookings for Kuaishou’s shares had been helped by the record close of the Nasdaq Composite Index this week, which “has been helpful to the valuation of technology stocks,” said Philip Capital’s director Louis Wong, adding that the HK$31.5 billion of margin loan applications received by his brokerage was 58 per cent over his budget.
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The world’s largest IPO since Alibaba Group Holding’s US$13 billion November 2019 secondary listing, the scramble for Kuaishou is a manifestation of investors’ search for yields in an era of cheap money unleashed by global central banks to combat the coronavirus-led economic slump. Driven by the fear of missing out, investors are more concerned about getting allocations than asking how Kuaishou can turn its 262.4 million daily active users into profits.
Kuaishou, based in Beijing, was unprofitable in each of its three previous financial years, reporting a nine-month loss of 97.4 billion yuan (US$15 billion) despite a 59 per cent jump in daily active users in the same period.
The grab for market share and active customers, buoyed by an offering at the top end of Kuaishou’s price range, values the nine-year-old company at US$60.9 billion, more than its Nasdaq-listed competitor Bilibili, and the online video streaming site iQiyi.
HSBC, one of the three currency-issuing banks in Hong Kong and also a joint bookrunner of the IPO, reported the biggest demand for margin loans, receiving applications for over HK$100 billion on Tuesday, two thirds of its HK$150 billion budget.
The large sums involved also shows how size and deep pockets matter in one of the world’s most overcrowded capital markets, where about 600 licensed brokers engage in an uneven battle for stockbroking commission. The 14 largest firms share 61 per cent of the market, while 51 mid-tier brokers have 33 per cent of the pie, leaving 500 of the smallest agents – typically family-run teams of traders – to fight over the remaining 6 per cent of fee income, according to the local stock exchange’s data. Kuaishou counts Tencent Holdings among its financial backers.
Retail investors can apply for Kuaishou’s stocks until Friday. Banks and brokerages are offering competitive loan rates to lure their business. HSBC is offering up to HK$100 million for each customer at 0.80 per cent per annum interest for loans of over HK$3 million. That’s cheaper than what many smaller, and less capitalised brokers, charge at between 1 and 2 per cent per annum.
An HSBC spokesman said the bank had seen “record level” in the uptake of Kuaishou’s IPO loans, adding that over 90 per cent of the applications were done via the bank’s digital platform.
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