JD IPO freezes $42b amid margin frenzy

Finance | Avery Chen and Bloomberg 9 Jun 2020

The Hong Kong share sale of as much as HK$31.3 billion of shares in JD.com, China's No 2 online retailer, has been at least 26 times oversubscribed by retail investors, freezing more than HK$42 billion through margin financing on the first day of its public offering.

The deal's institutional tranche is also oversubscribed multiple times by investors.

JD is offering 133 million shares at no more than HK$236 apiece, with 95 percent of shares available for institutional investors and 5 percent for retail investors. The minimum investment is HK$11,918 per lot of 50 shares.

The share sale is set to be the world's second biggest offering this year and comes on the heels of Chinese internet company NetEase's HK$21-billion Hong Kong share sale last week.

But retail investors showed more enthusiasm for JD's flotation. They placed around HK$30 billion-worth of orders for NetEase's initial public offering on the first day - at least 25 percent less than for JD.

If the retail portion is covered 100 times or more, a clawback mechanism will be triggered that allows retail investors to subscribe to 12 percent of shares, according to JD's prospectus.

Meanwhile, the IPO size will be enlarged to as much as HK$36.1 billion if international underwriters fully exercise their up to 15 percent over-allotment option.

Prior to NetEase last week, just US$3.5 billion (HK$27.2 billion) had been raised through IPOs in Hong Kong - the world's busiest listing venue last year.

This week is set to beat that tally easily with JD, which is due to price on Thursday. And then China Bohai Bank is set to launch a US$2 billion IPO immediately after.

Escalating tensions between Washington and Beijing are also increasing risks for Chinese companies like JD and NetEase that are seeking to broaden their investor base.

New Oriental Education & Technology and TAL Education, two mainland online education providers listed on the New York Stock Exchange, are weighing Hong Kong secondary listings, according to Reuters IFR.

And TAL Education revealed late last month that an internal audit found an employee had inflated sales by forging contracts.

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