Confidence high for ‘deal of decade’ Ant IPO

Hong Kong stockbrokers are so confident fintech group Ant Group’s blockbuster initial public offering (IPO) will go smoothly that they are offering to let mom-and-pop investors buy the stock with as much as 20 times leverage.

That matches the highest ratio ever offered by brokerages, including Bright Smart Securities & Commodities Group and UP Fintech Holding, a reflection of fierce competition for finance and trading fees in what could be the biggest IPO in history.

Ant’s dual listing in Hong Kong and Shanghai is expected to raise at least $35bn (about R580bn) though a date is not set.

Though higher-than-normal leverage could help supercharge demand for one of the most hotly anticipated IPOs in years, it exposes investors and their brokers to greater risk should the stock slump. It also threatens havoc on Hong Kong’s money markets, where interest rates often record big swings around even modest share sales.

“Pretty much every broker and bank is trying to find margin financing for its clients so they can try to win allotment for shares,” said Nick Xiao, CEOof Hywin International, a financial services firm in Hong Kong.

“Ant is the deal of the decade,” he said. Hong Kong has more than 700 brokerages, though just 14 generate more than half the city’s daily stock turnover. Margin loans are a major source of the industry’s revenue.

For investors, the loans increase the odds of winning an IPO allocation and amplify gains when a stock rises after listing. But they can also lead to big losses when deals flop: for someone using 20 times leverage, a stock would need to decline only 5% to wipe out their entire investment.

Hong Kongers typically only turn to independent brokers like Bright Smart for margin loans when they are especially bullish on an IPO because the firms charge higher interest rates than commercial banks or their brokerages.

Futu, an online broker backed by Tencent, is set to provide HK$30bn (R64bn) for Ant margin loans, the firm’s biggest provision yet. Bright Smart is preparing as much as HK$50bn.

Interest rates will depend on short-term interbank borrowing costs when the Ant share sale begins, according to Edmond Hui, CEO of Bright Smart. The typical window for IPO orders is usually less than a week in Hong Kong.

Demand for Nongfu Spring’s nearly HK$8.5bn sale this year drove up Hong Kong’s interbank lending rates.

Brokers expect Ant to have a bigger impact on liquidity. The company plans to increase the valuation target for the IPO to $280bn from $250bn, say insiders.

There is no guarantee the IPO will be a success. Jack Ma’s fintech behemoth has a narrow window to list ahead of expected turbulence from the US presidential election.

Mom-and pop investors will be allowed to buy with as much as 20 times leverage