Wealth managers in Asia are preparing to lend more to their clients and help them raise cash by selling investments to ensure they can get their hands on shares in Chinese fintech giant Ant Group’s up to $30 billion IPO, bankers said.
The region’s wealth managers routinely offer loans to major clients for subscribing to initial public offerings (IPOs), but they are going the extra mile to offer access to what could be the world’s largest listing because the deals are lucrative and come at a time when the pandemic has hit new business growth.
And getting the desired number of shares allotted on the blockbuster listing could be tricky because the technology sector is fancied by investors, and the bigger the investment in the IPO, the greater the chances of securing allotment, bankers said.
“If it’s the world’s largest IPO, it becomes mandatory for the wealth managers to try and get their clients on the front seats,” said a Hong Kong-based senior banker at a European wealth manager that manages more than $200 billion in assets.
“For an offering like this you can only boost your chances of allotment by raising the bid size and that will only happen by increased leverage,” said the banker, declining to be named as he was not authorised to speak to the media.
Ant, an arm of Chinese e-commerce giant Alibaba Group, did not disclose the size, timetable or other key details of the offering in its preliminary prospectus filed last week. But sources have said the dual listing in Shanghai and Hong Kong could raise as much as $30 billion and come as soon as October.
Wealth management firms in Asia including Bank of Singapore, Credit Suisse, Julius Baer and UBS already provide loans against securities. They profit from the interest they charge as well as from brokerage fees.
The loan-to-value ratios, or the sum one can borrow against the total value of the underlying asset, at top wealth managers for IPOs in Asia range between 30% and 50% depending on market conditions and company fundamentals.
In Ant’s case, some banks are looking to raise that to as much as 80%, said the people.
And given the low interest rates and a rally in tech stocks, some private banks’ have reversed moves introduced earlier this year to cut or even stop single-stock loans as they were deemed a high-risk business in a volatile market, they said.
Some wealth managers are also advising clients in the region to pare or exit their holdings in fixed-income and other under-performing securities to free up liquidity to participate in the Ant IPO, the people said.
“Despite the size of the IPO, demand for tech is huge, so there’ll be a scramble for allocations,” said a Singapore-based wealth manager at a French bank, who also declined to be named as he was not authorised to speak to the media.
“I have told my clients to be patient and look for trades in the secondary market. This is a long-term trade not just an IPO trade.”