Hong Kong brokers face funding squeeze in rush for iBonds
Some Hongkongers hoping to buy the government's third batch of iBonds with a loan from a stockbroker rather than a bank may be out of luck, as banks have been cutting off credit to brokers in a battle for new customers.
"No bank is willing to lend this time, because no-one wants to miss this golden opportunity to add new clients," said Sharon Wong, a director at Shenyin Wanguo Securities. "HSBC, Standard Chartered and Bank of China - all said no this time."
It was different a year ago, Wong said, when the second batch of the inflation-linked bonds went on sale.
Most local banks would agree to brokers' financing requests then, he said.
The number of subscribers for the third batch of iBonds is expected to exceed 400,000, outnumbering those for the batches in 2011 and last year.
A senior executive at Bank of China (Hong Kong) confirmed it is not providing margin financing to brokers this year, although it did so in 2012, saying it was because it "did not see a demand".
Brokers, especially smaller ones without a great deal of cash, normally borrow money from banks to lend to customers wishing to subscribe on margin to a highly popular public offering. The brokers pay up to 1 per cent in interest to the lenders.
But this time, banks stopped the funding, forcing smaller brokers into a cash shortage.
"Smaller brokers are running out of cash, as there is nowhere to borrow," said Nelson Chan, chief executive of Bright Smart Securities & Commodities.
Many small brokers have told clients they will stop margin lending for iBonds before the end of the official subscription period on Thursday next week.
Celestial Asia Securities, owned by CASH Financial Services, will offer HK$100 million of margin for subscriptions and refuse all requests beyond that.
Many brokers are capping their margin lending for each account to between HK$30,000 and HK$50,000 per person. By comparison, subscriptions through major banks have averaged HK$100,000 per person.
Tight lending has had less impact on bigger brokers. Sun Hung Kai Financial has HK$4 billion on hand, and KGI Securities has HK$3 billion, industry sources said. Phillip Securities said it has HK$1 billion available.
Additional reporting by Kanis Li