Hong Kong stockbrokers are so confident Ant Group’s blockbuster IPO will go smoothly that they’re 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 Ltd., a reflection of fierce competition for finance and trading fees on what could be the biggest IPO in history. Ant’s dual listing in Hong Kong and Shanghai is expected to raise at least $35 billion, though a date has yet to be finalized.
While higher-than-normal leverage could help supercharge demand for one of the most hotly anticipated IPOs in years, it exposes both investors and their brokers to greater risk should the stock slump. It also threatens to wreak 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, chief executive officer of Hywin International, a financial services firm in Hong Kong. “Ant is the deal of the decade.”
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 revenue for the industry.
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 only need to decline 5% to wipe out their entire investment.
Hongkongers typically only turn to independent brokers like Bright Smart for margin loans when they’re especially bullish on an IPO, because the firms often charge higher interest rates than commercial banks or their brokerage arms. IPOs by NetEase Inc. and JD.com Inc in the city earlier this year also saw similar lending offers.
Futu Holdings Ltd., an online broker backed by Tencent Holdings Ltd., is set to provide HK$30 billion ($3.9 billion) for Ant margin loans, the firm’s biggest ever provision. Bright Smart is preparing as much as HK$50 billion.
Interest rates will depend on short-term interbank borrowing costs in the city when the Ant share sale begins, according to Edmond Hui, chief executive of Bright Smart. The typical window for IPO orders is usually less than a week in Hong Kong.
Demand for Nongfu Spring Co.’s nearly HK$8.5 billion sale this summer locked up about HK$600 billion, driving up Hong Kong’s interbank lending rates. Brokers expect Ant to have an even bigger impact on liquidity.
Of course, there’s 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 U.S. presidential election. And the Trump administration is exploring restrictions on Ant, as well as rival Tencent Holdings Ltd., over concerns that their digital payment platforms threaten U.S. national security.
Brokerages are nevertheless betting on Ant’s popularity to win customers. “Even if the IPO is delayed, it won’t dent the enthusiasm,” said Gordon Choi, chairman of the Hong Kong Securities Association, an industry body of more than 350 local brokers. “People are bullish about Ant’s business outlook.”