Explainer: How Family Investors Raised a Record $ 3 Trillion for Ant Stock

HONG KONG: Retail investors bid for a record $ 3 trillion worth of shares on Ant Group Co Ltd’s double listing, in an unprecedented show of interest from family savers betting on demand for their fintech services in China.

The world’s largest initial public offering (IPO) was split fairly evenly between the Shanghai STAR market and Hong Kong, raising around $ 37 billion, including the Shanghai tranche green option. From retail investors alone, it attracted a supply value equal to Britain’s gross domestic product.

Here’s how retail investors in China and Hong Kong managed to hit that huge number:

HOW MUCH RETAIL DEMAND DID ANT’S IPO GENERATE ON THE CONTENT?

Chinese retail offerings for Ant shares amounted to US $ 2.8 trillion. That compared to the $ 19.8 billion the 16-year-old fintech giant raised across the entire Shanghai portion of its initial public offering, including the greenshoe option, or over-allotment.

Ant, in a statement late Thursday, said it will allocate about 350 million shares to retail investors, representing 18.3 percent of Shanghai’s offering. That means a retail allocation worth 24.1 billion yuan (US $ 3.6 billion) based on the IPO price of 68.8 yuan per share.

Selected bidders must pay for their shares by 4pm Shanghai time on Monday or else the shares will be allocated to the main underwriter of the sale.

HOW DID THE PENINSULA RETAIL INVESTORS MANAGE TO ADJUST US $ 2.8 TRILLION?

The total retail demand did not involve prepayment. Also, local rules do not allow banks or brokerages to offer margin financing for IPOs.

Each mainland retail investor was allowed to bid for one unit, or 500 Ant shares, for every 5,000 yuan of other Chinese shares they already owned, up to 317,000 Ant shares. No cash was needed to bid, and investors Those who were assigned shares after a lottery-like drawing must have enough money to cover their offer.

The Shanghai portion of Ant’s IPO was heavily skewed toward strategic and institutional investors. The ability for retail investors to buy Ant shares was further reduced by the participation of small hedge funds that were not qualified to participate in institutional tenders.

HOW DID RETAIL INVESTORS MANAGE TO MAKE $ 168 BILLION IN OFFERS FOR THE HONG KONG LEG OF ANT IPO?

Unlike China, margin financing is a booming business in Hong Kong. Margin loans supported about half of Hong Kong’s retail demand from the IPO, local media reported, helped by significant liquidity and interest rates as low as 0.4 percent for short-term credit, about 10 days in such. cases.

HSBC Holdings PLC said it set aside HK US $ 150 billion (US $ 19 billion) in loans to support retail investors’ interest in Ant’s IPO, while BOC Hong Kong Holdings Ltd said it received more than HK US $ 100,000. million in margin financing requests.

Some financial firms offered 20 to 30 times leverage to retail clients, banking industry experts told Reuters.

HOW DO RETAIL INVESTORS USE MARGIN FINANCING AND HOW DOES IT WORK FOR LENDERS?

Retail investors in Hong Kong go into debt heavily as larger offerings increase share allocation possibilities, pinning their hopes of profiting from a debut trading day pop. They pay off the loan shortly after listing and keep the proceeds.

Margin loans are lucrative for finance companies in Hong Kong as they earn interest on the loans regardless of whether the clients are assigned shares. They also benefit from opening new brokerage business accounts.

Margin funding money is locked in a designated clearing bank. Given the strong demand for Ant shares, the actual success rate for Hong Kong retail investors is relatively low, meaning that brokers and banks will only have to lend a small portion of the requested margin financing.

(US $ 1 = 7.7541 Hong Kong dollars)

(Reported by Samuel Shen in Shanghai, and Scott Murdoch and Julie Zhu in Hong Kong; Additional reporting by Donny Kwok in Hong Kong; Written by Sumeet Chatterjee; Edited by Christopher Cushing)