Explainer | How retail investors can increase their chances of getting a piece of Ant Group’s blockbuster IPO in Hong Kong
- With just 2.5 per cent of Hong Kong-leg shares allocated to retail investors, a surge in applications has already crashed an online broker website
- Investors could keep their orders small and get a refund of related costs if unsuccessful, or borrow for a higher chance of allotment at a cost
Here is an explainer on how a local retail investor can also get a chance to invest in the world’s largest IPO ever.
How many shares of Ant’s IPOs are being offered to retail investors in Hong Kong, and how can they buy them?
How much does one need to pay for the Ant IPO?
Ant, which will be trading under an auspicious stock code of 6688, which means prosperity and wealth in Chinese, has set its IPO price at HK$80 per share, also a lucky number in Chinese.
According to the allocation table, an investor can apply for at least one lot, consisting of 50 shares. Including brokerage commission and other fees, the minimum subscription will amount to HK$4,040.31 (US$521.33).
At the maximum, one can place an order for 20.88 million shares for HK$1.69 billion, inclusive of costs.
But what is the chance of a successful allocation of applying just 50 shares of Ant then?
Hong Kong’s most-recent IPO smash-hit by Chinese beverage producer Nongfu Spring in August may provide some reference. Priced at HK$21.50 per share for a minimum subscription of 200 shares retail tranche was oversubscribed by about 1,140 times.
Retail investors who submitted the minimum size had a 12 per cent success rate, the highest among all bidding categories. Investors who applied for 1 million shares above only had a 0.14 to 0.22 per cent chance of winning, according to the company’s exchange filing.
Is it a good idea to borrow to subscribe to Ant’s IPO?
Borrowing can help with subscription, but at a cost. Investors might seek to maximise the chance of getting an allocation by buying a bigger ticket using the leverage provided by the margin loans, usually at 20 times.
Meanwhile, online brokerage Futu Securities’ website crashed at one point on Tuesday after being inundated by a surge in applications.
Investors need to beware of the margin financing rates, which could cost between 0.48 per cent and 3.5 per cent, depending on the lender.
What is Jack Ma’s Ant Group and how does it make money?
Take HSBC as an example. The bank is prepared to offer a total of HK$100 billion worth of margin loans for the Ant IPO, the highest among all financial firms in Hong Kong. Investors can borrow between HK$100,000 and HK$20 million per application.
Based on an interest rate of 0.48 per cent, that works out to a total interest cost of HK$1,315 on a HK$20 million loan for five days, from the IPO book close to the stock debut on November 5.
The leverage gives the investor a better chance of getting a higher shares allocation. Assuming the investor gets the full allocation, he or she can make a profit as long as the shares price rises by about 2 per cent, and have the interest and other costs covered.
The downside is that if the investor does not get an allocation, he will have to shoulder the HK$1,315 interest cost, which will be charged by the bank regardless of the application outcome.
Can an investor still buy into the Ant IPO without borrowing?
Yes. For investors who are not interested in taking a margin loan, and are happy to get a smaller allocation, the minimum subscription lot of 50 Ant shares will cost HK$4,040.31.
The benefit is that the investor will get all the subscription fees refunded if he does not get any allocation in the end.
What is Ant Group’s retail IPO time table?
The retail tranche opened on Tuesday and closes on Friday noon local time. The allocation will be released on November 4 on the stock exchange’s website, and the stock will start trading at 9am on November 5.
