Caixin
Oct 30, 2020 04:29 AM
FINANCE

Update: Ant Group’s Mega IPO Stokes Retail Buying Frenzy

Retail investors scrambled to buy into Ant Group Co. Ltd.’s $34.4 billion dual listing in hopes of seizing a slice of what is set to be the world’s largest initial public offering (IPO) ever.

Bids for the retail portion of Ant Group’s listing in Shanghai totaled a record 19.05 trillion yuan ($2.8 trillion) Thursday, exceeding supply by more than 872 times, according to the Hangzhou-based fintech giant.

Ant Group, a leading financial technology company backed by e-commerce behemoth Alibaba Group, decided to exercise a so-called greenshoe option for a 15% overallotment of shares in Shanghai, selling 1.92 billion shares on the Nasdaq-style STAR Market. Strong demand from retail investors also triggered a mechanism that gives smaller investors a greater share, Ant Group said in a fling.

The fintech giant was set to sell 1.67 billion shares each on the Hong Kong and Shanghai stock exchanges before the overallotment. The projected $34.4 billion fundraising would surpass oil giant Saudi Aramco’s record $29.4 billion offering around the beginning of this year.

Investor demand is also strong for the Hong Kong leg, as banks and brokers prepare tens of billions of dollars of cheap margin loans for the listing.

More than 1 million mom-and-pop investors in the city could end up subscribing to the Hong Kong part of the dual listing, which would break the current record of 970,000 retail subscribers for Industrial and Commercial Bank of China Ltd.’s Hong Kong IPO in 2006, according to Pamela Chung, business services provider Tricor Group LLC’s Hong Kong Commercial managing director. That many retail investors would equal almost a seventh of Hong Kong’s population.

Retail subscriptions for Ant’s IPO shares in Hong Kong are open until Friday.

Banking giant HSBC Holdings PLC is ready to lend as much as HK$100 billion ($12.9 billion) to Ant Group IPO investors, offering an annual interest rate as low as 0.48% to those who borrow at least HK$3 million. In addition, many brokers and other banks are slashing interest rates and service fees on the loans as they compete for clients.

ant chart

As of Thursday evening, Hong Kong retail investors have secured more than HK$415 billion in margin loans for the IPO, according to calculations (link in Chinese) made by the Hong Kong Economic Times newspaper. That amounts to the offering being oversubscribed more than 120 times.

This enthusiasm has been reflected in a spike in interbank lending rates this week. On Wednesday, the seven-day Hong Kong Interbank Offered Rate jumped to 0.64% from 0.13% just a week earlier.

On the Chinese mainland, investors started subscribing online Thursday to the Shanghai leg of Ant Group’s dual IPO.

The shares were priced at 68.8 yuan ($10.30) each in Shanghai and HK$80 in Hong Kong, and will begin trading on the two exchanges on Nov. 5. The pricing gives the company a market valuation of about $310 billion.

 Read more 
Cover Story: How Ant Grew Into an Elephant-Sized Behemoth

Some analysts are optimistic about Ant Group’s prospects, citing its rapid revenue growth and strong competitive edge. The company has a significant advantage in internet traffic, and there is still room for further improvement, analysts from Guosen Securities Co. Ltd. wrote in a note (link in Chinese). The combination of a large user base and a broad market is beneficial to the company’s growth potential, they said.

But some warned about risks to its business model. Ant Group relies on highly leveraged credit (link in Chinese), especially subprime consumer loans, to boost profits, which may turn into a burden that threatens the company’s growth, said Ji Shaofeng, the founder of IT startup Jiangsu Wufeng Information Technology Co. Ltd. who spent 16 years working in various roles for financial regulators.

Contact reporter Guo Yingzhe (yingzheguo@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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