Retail investors have applied for over $60 billion in margin loans to participate in the Hong Kong initial public offering (IPO) of Chinese toymaker Bloks Group Ltd., highlighting continued strong demand for new listings. This surge in borrowing reflects a broader trend in the Hong Kong IPO market.
Table Content:
According to TradeGo data displayed on the Futubull trading application, the loan applications represent over 3,200 times the number of shares allocated to retail investors at the top end of the IPO price range. By 4:30 p.m. Hong Kong time, individual investors had requested HK$473.6 billion ($60.9 billion) in margin financing from brokerages to bid on Bloks shares.
Bloks Group IPO and Recent Market Trends
Bloks, known for its assembly-character toys, opened its IPO book on Tuesday and is scheduled to list on January 10th. The company plans to offer 24.1 million shares, aiming to raise up to HK$1.5 billion, with 10% allocated to local retail investors. The Bloks IPO follows a successful rally by fellow toymaker Pop Mart International Group Ltd., further fueling investor enthusiasm.
This substantial interest comes amid a broader anticipation of a stronger year for Hong Kong IPOs. Several listings in 2024 attracted significant retail participation, particularly smaller deals with high subscription multiples.
Margin Financing and Increased Retail Participation
Notable examples include the $749 million listing of Chinese courier SF Holding Co., which saw approximately 79 times oversubscription in its retail tranche. Similarly, the retail portion of health-supplement company Herbs Generation Group Holdings Ltd.’s $16 million IPO was oversubscribed by more than 6,000 times. Both companies activated the clawback mechanism, reallocating more shares to retail investors.
The increased retail activity can be attributed in part to the growing number of brokerage firms offering margin loans at low or even zero interest rates, according to Andy Wong, IPO leader at Shinewing (HK) CPA Ltd. This trend has contributed to a “boiling atmosphere” in the Hong Kong IPO market, Wong notes. However, he cautions that this heightened demand also translates to lower chances of securing shares and potential post-listing pressure on the issuer’s stock price.
Hong Kong Exchange Reforms and Clawback Mechanism
In 2023, the Hong Kong stock exchange implemented changes to its IPO settlement platform, reducing the time between pricing and debut from five business days to two. This shorter settlement period allows brokerages to offer higher leverage with no margin interest.
The Hong Kong Exchanges and Clearing Ltd. is currently conducting a market consultation proposing adjustments to IPO requirements, including the clawback mechanism. Under existing rules, retail investors can receive up to 50% of a deal when subscription ratios exceed a certain threshold. The exchange proposes lowering this allocation to 20% for issuers initially reserving 5% of shares for the public. This mechanism has been a point of contention for investment bankers, who argue it limits their ability to allocate shares to institutional investors in high-demand IPOs.
Bloks Group Financials and Intellectual Property
Bloks derives over half its revenue from products based on the Ultraman intellectual property, as disclosed in its listing document. The company reported approximately 1 billion yuan ($143 million) in revenue for the first six months of 2024, with a net loss of 254.9 million yuan.
In conclusion, the significant demand for margin loans in the Bloks Group IPO underscores the robust appetite for new listings among retail investors in Hong Kong. While facilitated by readily available margin financing and recent exchange reforms, this heightened activity also presents potential challenges for both investors and issuers. The performance of Bloks Group post-listing will be closely watched as an indicator of market sentiment and the sustainability of this trend.
