The initial public offering by Oi Wah Pawnshop Credit is tiny at just HK$98 million. But just for being the first pawnshop in Hong Kong to go boldly where no pawnshop has gone before, it has attracted the attention of investors. The IPO was 1,085 times oversubscribed and shares surged 34 per cent on the first day of trading on Tuesday. But the share price plunged almost 7 per cent yesterday as the broader markets fell.
Oi Wah, in business for 37 years, recently transformed when it started mortgage lending in 2009, just when the property bubble was heating up. It has 12 pawnshops in the city.
It takes gumption for a pawnshop to go from accepting gold, jewellery and watches to mortgage lending using flats as collateral. Business has been brisk in this new line of lending. According to company statements, the number of outstanding mortgage loans surged to 57, worth a total of HK$71.4 million in November of last year, from just one loan in 2009. It says half of its mortgage cases are returned clients. But the lending rates are steep. In this ultra-low interest environment, Oi Wah charges between 7.8 and 30 per cent on its mortgage loans, with the average at 14.9 per cent. It says funding raised through the IPO will help expand its mortgage business, targeting households and troubled small and medium-sized companies.
The attraction of its service, it says, is that clients can avoid the lengthy and complicated credit approval processes at local banks. But that's also why bank customers enjoy a discounted prime rate of around 2.2 per cent these days.
All this sounds like the Hong Kong version of subprime mortgage lending. Let's just hope it won't all end in tears as it did in the US. The IPO comes at an especially challenging time, after a series of tough government measures against property speculation, while the market may be showing signs of fatigue. It may end up being an inadvertent call on the top of the property market. If that's true, Oi Wah and its investors will wish it had stayed with collecting watches and jewellery.