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

By Scott Murdoch, Julie Zhu and Kane Wu

HONG KONG (Reuters) – China’s Kuaishou Technology raised $5.4 billion from its IPO, the top of the range, with offers from retail investors reaching a mammoth $162 billion, nearly half of it backed by margin loans, three people with knowledge of the matter said.

Combining retail and institutional demand, the offering saw total bids worth over $370 billion, more than the gross domestic product of Hong Kong, for the 8.9% of the online video site on offer. The shares were priced at HK$115 ($14.83), two of the sources said, making the company worth $60.9 billion.

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

Those concerns, triggered by a sharp surge in U.S. videogame retailer GameStop and a few other stocks, have led some brokerages globally to raise margin requirements or stop offering leverage for buying securities.

Retail investors bid for more than 1,200 times the amount of Kuaishou shares on offer for them as the book closed on Friday, said the sources, who declined to be named as the information had not yet been made public.

The over-subscription rate means the mom-and-pop investors alone bid for $162 billion worth of stock, while the offering had earmarked just 2.5% of the capital raising, or $135 million worth of stock, for them.

As per Hong Kong’s clawback rules, the retail portion of the IPO will now be enlarged to 6% due to the demand, according to the company’s prospectus. The institutional portion of the book was covered more than 55 times in comparison, two of the sources said.

Brokerages attributed the demand for Kuaishou initial public offering (IPO) of shares as the reason for the Hang Seng Index falling 0.9% on Friday as investors dumped stocks to free up cash.

Kuaishou will debut on the Hong Kong stock market on Feb 5.

The red hot demand for Kuaishou shares from retail investors pushed margin financing applications to buy the company stock past HK$500 billion at just the top banks and brokers.

Individual investors in Hong Kong, which has among the highest retail trading levels in the world, are renowned for borrowing heavily as larger bids boost the chances of being allocated shares in an IPO.

Investors rely on a first-day share price rise to pocket gains after paying back the loan, but face a huge risk if a company’s stock tanks on debut.

“There are the same risks here that we are seeing globally with things like GameStop, people get carried away and lose rationality,” GEO Securities chief executive Francis Lun said.

“The banks are fuelling this frenzy too. They put all their cash reserves into this IPO frenzy. There are no other areas where they can generate HK$400 billion worth of loans so quickly and they earn interest from that.”

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

HSBC, the largest bank in Hong Kong, expanded its margin financing quota for the deal from HK$150 billion to HK$200 billion after strong demand, a spokeswoman said.

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

Everbright Sun Hung Kai securities strategist Kenny Ng said the surging popularity of digital companies during the COVID-19 pandemic had fueled retail investor demand.

“The whole sector performance of new economy stocks may be the main incentive for the hot demand to Kuaishou.”

(Reporting by Scott Murdoch, Kane Wu and Julie Zhu; editing by Richard Pullin and Jason Neely)