Retail buyers flood China’s Kuaishou HK IPO with $ 162 billion offered

HONG KONG (Reuters) – Chinese firm Kuaishou Technology raised $ 5.4 billion in its high-end IPO, with offers from retail investors reaching $ 162 billion, nearly half of which backed by margin loans, said three people with knowledge of the matter. .

FILE PHOTO: The logo of Chinese video streaming startup Kuaishou is seen in Beijing, China on May 10, 2017. Photo taken on May 10, 2017. REUTERS / Stringer

Combining retail and institutional demand, the supply saw total offerings worth more than $ 370 billion, more than Hong Kong’s gross domestic product, for the video site’s 8.9% in proposed line. The shares were priced at HK $ 115 ($ 14.83), two of the sources said, bringing the company to $ 60.9 billion.

The huge demand comes amid growing fears of an asset bubble, with amateur investors raising the price of assets ranging from cryptocurrencies to new stock quotes.

These concerns, triggered by a sharp rise in U.S. video game retailer GameStop and a few other stocks, have led some brokerage firms globally to increase margin requirements or stop offering leverage for the company. purchase of securities.

Retail investors bid for more than 1,200 times the amount of Kuaishou shares offered to them at the close of the book on Friday, the sources said, who declined to be named because the information did not yet been made public.

The oversubscription rate means family investors alone bid for $ 162 billion in shares, while the offer only reserved 2.5% of the capital raise for them, or $ 135 million in shares. .

In accordance with Hong Kong’s recovery rules, the retail share of the IPO will now be increased to 6% due to demand, according to the company’s prospectus. The institutional part of the book was covered more than 55 times in comparison, two of the sources said.

Brokerages attributed the initial public offering (IPO) of shares to Kuaishou as the reason for the Hang Seng index’s 0.9% drop on Friday as investors scrapped their stocks to free up money. ‘money.

Kuaishou will debut on the Hong Kong Stock Exchange on February 5.

Searing demand for Kuaishou shares from retail investors has prompted requests for margin funding to buy the company’s shares beyond HK $ 500 billion alone from major banks and brokers.

Individual investors in Hong Kong, which has one of the highest levels of retailing in the world, are notorious for borrowing heavily, as larger bids increase the chances of being awarded shares on an IPO. stock Exchange.

Investors rely on a rise in the stock price on day one to pocket gains after paying off the loan, but face enormous risk if a company’s shares empty in their early stages.

“There are the same risks here that we see in the world with things like GameStop, people get carried away and lose their rationality,” said Francis Lun, managing director of GEO Securities.

“Banks are also fueling this frenzy. They have put all their cash reserves into this IPO frenzy. There is no other area where they can generate HK $ 400 billion worth of loans so quickly and earn interest on it. “

The company did not respond to a request for comment on pricing or oversubscription rates.

HSBC, Hong Kong’s largest bank, increased its margin funding quota for the deal from HK $ 150 billion to HK $ 200 billion after strong demand, a spokeswoman said.

Bank of China Hong Kong has offered HK $ 200 billion to investors, a spokeswoman said. Brokerage Bright Smart Securities had claims for HK $ 43.9 billion and Haitong International Securities HK $ 26.8 billion.

Everbright Sun Hung Kai securities strategist Kenny Ng said the growing popularity of digital businesses during the COVID-19 pandemic has fueled demand from retail investors.

“The performance of the whole new economy equity sector may be the main incentive for strong demand in Kuaishou.”

($ 1 = 7.7528 Hong Kong dollars)

Reporting by Scott Murdoch, Kane Wu and Julie Zhu; edited by Richard Pullin and Jason Neely

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