Demand for margin financing pushes HK interbank rate to a one-year high Interest in Bank of Communications' (Bocom) initial public offering keeps growing. On the second day of the retail offer, demand for margin financing pushed the one-week Hong Kong interbank rate to a one-year high of 3.6 per cent. Some brokerages, including Guotai Junan and Tai Fook Securities, said they exhausted their margin lending facilities for Bocom yesterday even though the offer remains open until noon tomorrow. 'We received another $700 million worth of orders, despite the fact that our rates increased from 3.95 per cent to 4.15 per cent yesterday,' said a Phillip Securities spokesman. The firm has lent $2.2 billion in margin financing for Bocom's offer so far. KGI Securities increased its margin financing rates to 4.5 per cent from 4.25 per cent. 'We have received more than $3 billion [in] Bocom orders so far,' said director Ben Kwong Man-bun. Vincent Cheng Hoi-chuen, chairman of Hongkong and Shanghai Banking Corp, said the rise in interbank rates - the overnight rate hit 4 per cent at one point yesterday from 3.34 per cent in the morning - was a temporary situation driven by the huge listings. Once they were over, the rate would return to its normal level, he said. Bocom is aiming to raise up to $14.93 billion, while China Cosco Holdings has started to market an offer of up to $12.9 billion. Anticipating the hefty demand for Bocom, Core Pacific-Yamaichi International had applied for extra funding facilities so that it could lend up to $3 billion, said director Ronny Tang Kwan-hui. So far it had lent about $1.1 billion, he said. Fewer fireworks are expected when China Shenhua Energy starts trading this morning, although most analysts and brokers expect a solid debut at a time when the local market lacks a clear direction. The best estimates suggest 10 per cent gains, but several analysts see resistance at $8 a share - a level that translates into a 6.66 per cent upside. The most pessimistic observers expect the coal producer to trade flat at its $7.50 offer price. The $8 level is significant because, according to sources, most institutional investors were unwilling to pay more than that to buy shares in the initial public offering, with many setting limits for their orders as low as $7.50. 'Basically, if investors cannot justify a higher valuation than $8, they will regard it as a level to sell,' said one institutional salesman. Shenhua priced its offering - Hong Kong's largest since China Life Insurance's popular issue in December 2003 - near the bottom of the $7.25 to $9.25 price range, enabling it to raise $22.97 billion. Retail investors subscribed for 15.64 times the 153.1 million shares initially available to them, just enough to trigger an increase of the retail tranche to 7.5 per cent of the offer from 5 per cent. Still, the retail demand was modest compared with offers such as China Life, I.T and Bauhaus, which suggested many speculators had stayed away - a factor that would help limit the selling pressure, analysts said. The offer was arranged by China International Capital Corp, Deutsche Bank and Merrill Lynch. Kenny Tang Sing-hing, an associate director at Tung Tai Securities, said despite the low-end pricing, which valued the company at 10 times its projected earnings this year, Shenhua was expensive compared with smaller rival Yanzhou Coal Mining, which trades at about 7.3 times forward earnings. He predicted the upside would be limited to about 5 per cent to 6 per cent. Additional reporting by Anette Jonsson