Jack Ma’s Ant Group Files for Mega IPO in H.K., Shanghai

Market participants said Hong Kong-based brokerages are preparing billions of dollars in margin lending to meet expected retail demand growth during the $ 35 billion dual listing of Chinese fintech giant Ant Group in Hong Kong and Shanghai. The placement will take place in the next few weeks.

Lending on margin, or the amount that brokers can lend to individual investors to buy shares, has been a massive business in Hong Kong in recent years, and the large number of outstanding shares has attracted retail buyers..

According to the City Securities and Futures Commission (SFC), in the first half of 2020, Hong Kong opened 851,157 margin lending accounts with a total loan volume of HK $ 161.8 billion ($ 21 billion). Their number increased sharply from 601,842 in relation to the same period last year..

Expected rise in demand for margin funding for Ant’s Hong Kong initial public offering (IPO) tranche, which could be the largest in the world, underlines strong retail interest in the deal due to launch next week.

Ant, which operates China’s largest mobile payment platform Alipay, is backed by Chinese e-commerce Alibaba Group Holding.

Bright Smart Securities, one of the city’s largest brokerages, said it will provide a loan of up to HK $ 50 billion – one of the company’s largest proposals – for Ant’s IPO, despite looming market uncertainty due to the upcoming US elections..

«We will make sure that our interest rate is the lowest among our competitors», – CEO told Reuters Edward Hui, adding that retail investors would only need to deposit 5% to get a margin loan to buy Ant stock.

Representative of another Hong Kong brokerage company UOB Kai khian Allocated HK $ 20bn for Ant IPO margin funding, a company spokeswoman said.

Retail investors in Hong Kong – from taxi drivers to interns – borrow large sums as larger bids increase the chances of an IPO. They hope to benefit from the sharp rise in the stock on the first day of the flotation..

Brokers in Hong Kong Prepare for Ant Group's Mega-IPO

The loan can be issued for a period of 6-7 days and is profitable for brokerage houses, since they receive a commission for making transactions, as well as interest income from margin financing.

«We see that in Hong Kong, retail investors are always interested in participating in an IPO, it’s almost like a form of gambling, and there is a strong tendency for them to only hold stock for a day or two.», – said the chairman of the Hong Kong Institute of Investors Ricky Tam.

Retail brokers have said that margin rates will be set closer to the IPO launch date. Strong Demand May Raise Hong Kong’s Short-Term Interbank Supply Rate (HIBOR).

Two-week Hong Kong Interbank Offered Rate HIHKD2WD = Rises For Fourth Session On Thursday To Highest Level In More Than Seven Weeks.

The hype in retail trading poses certain risks for brokerage firms and their clients, especially given any heightened market volatility amid an economy already hit hard by the pandemic, as well as last year’s anti-government protests.

«The risk for subscribers is that they pay large commissions to try to get funds, they pay interest, and it is likely that the shares will be priced at the maximum price, ”he said. CEO GEO Securities Francis Loone. – This leaves very little profit margin.».

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