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Ant's record strategic allocation in Shanghai IPO fuels small investor scramble

SHANGHAI/HONG KONG (Reuters) - Chinese fintech giant Ant Group’s move to earmark a record 80% of the Shanghai leg of its $35 billion dual-listing for strategic investors has led to a scramble among smaller investors for what some see as a once-in-a-lifetime opportunity.

FILE PHOTO: Ant Group logo is pictured at the Shanghai office of Alipay, owned by Ant Group which is an affiliate of Chinese e-commerce giant Alibaba, in Shanghai, China September 14, 2020. REUTERS/Aly Song

Ant [IPO-ANTG.HK], backed by e-commerce firm Alibaba Group BABA.N, has launched a dual-listing process in Hong Kong and on Shanghai's STAR Market, and the offering is set to be the world's largest.

Some smaller Chinese investors, spooked by concerns they could get edged out of the initial public offering (IPO) at home, are looking to bid for Ant shares in the Hong Kong float, which sources have said will not include a cornerstone tranche.

The move underscores the likely robust demand for the float, even as the approaching U.S. election has triggered concerns about a spike in market volatility.

Shanghai-based Regan Fund Management Co, for one, is helping mainland investors subscribe to Ant’s IPO in Hong Kong, the firm’s Shanghai-based general manager Richard Li said.

The chance of securing IPO shares in the Asian financial hub is 50-70%, much higher than on the mainland, Li told Reuters.

Non-strategic or smaller investors in China participate in a lottery-like bidding process for IPOs, which means the fewer the number of new shares on offer the smaller the chance of winning the lucky draw.

“Everyone knows buying IPO shares makes good profits as most shares trade up on debut,” said a banker working on Ant’s STAR IPO, declining to be named as he was not allowed to speak about the process. “The demand has been rather strong for Ant shares.”

WOOING MAINLAND INVESTORS

Hong Kong-based brokerages are also taking advantage of the Ant IPO frenzy to woo mainland investors.

Huatai Financial Holdings is offering new clients from the mainland one Alibaba Hong Kong share if they open a brokerage account and deposit more than $HK20,000, according to an advertisement posted on an overseas investment platform in China.

Ant’s earmarking of 80% of the offering for strategic investors, including a unit of Alibaba, is sharply higher than an average proportion of 19% for such buyers in other STAR IPOs this year, according to Refinitiv data.

Before Ant, the record of strategic tranche on Chinese markets was set by Beijing-Shanghai High Speed Railway 601816.SS, which in January sold 49% of its $4.4 billion IPO to strategic investors, the data showed.

On the Nasdaq-style STAR, the bulk of past IPO allocations have been skewed towards state investors, mutual fund houses and select hedge funds, elbowing out smaller institutions and individuals, most of whom are not even qualified to trade.

In another unprecedented move, some of Ant’s strategic investors are subject to lock-up periods of longer than the one year that is typical, the company’s filing with the Shanghai exchange showed.

Such arrangements “reflect concerns that such a massive listing could have a big impact on A-share market liquidity,” said Hu Bo, fund manager of Future Star Fund Management Co, a Shenzhen-based hedge fund house, referring to mainland listed stocks.

“It could also show strategic investors are confident of Ant’s long-term growth prospects.”

Reporting by Samuel Shen in Shanghai and Julie Zhu in Hong Kong; Editing by Sumeet Chatterjee and Alex Richardson

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