Tencent-backed online brokerage Futu looks to cash in on Hong Kong IPO boom with plans to expand margin financing

Nasdaq-listed online brokerage platform Futu Holdings has launched a follow-on offering of 9.5 million American depositary shares that could raise about US$322 million to mainly expand its margin financing business, according to term sheets seen by the South China Morning Post.
The indicative deal size is based on Futu’s closing share price of US$33.91 on Monday. Year-to-date Futu’s share price has more than tripled, and reached US$40.3 on August 5 – its highest since listing in March 2019.
An overallotment option of up to 1.425 million ADS has been granted to the joint bookrunners – Goldman Sachs, Credit Suisse, Haitong International and UBS – to cover additional demand from investors. One ADS represents eight class A shares. The pricing is expected on Wednesday.
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The investment banks were not immediately available for comment. Senior management at Futu were also not immediately available for comment.
Futu is backed by social media giant Tencent Holdings, which owns about 33 per cent stake in the company. The brokerage, which charges zero commission and offers online trading of Hong Kong, Chinese and US stocks, has in recent years been aggressively expanding its business in Hong Kong under Futu Securities. It vies with rival platforms, such as Huatai Securities and SoFi Hong Kong that do not charge commission.
Futu Securities, which already runs one of mainland China’s biggest mobile stock-trading apps, enables mainland Chinese people to buy and sell Hong Kong and US-listed shares using money they already have parked in overseas banks.
The move to raise funds for expanding its margin financing business comes as online brokerages are getting more business from the increasing number of US-listed Chinese tech giants seeking secondary listings in Hong Kong amid deteriorating US-China relations, and heightened scrutiny on US-listed mainland issuers.
Since the coronavirus pandemic has brought the usual entertainment and gambling activities to a halt because of the extensive lockdowns, retail investors have had more time on their hands to punt on stocks as an alternative, according to some traders.
This can be gauged from the increase in average daily turnover on the Hong Kong stock exchange. The average daily turnover for the first seven months of the year was HK$124.8 billion (US$16.1 billion), an increase of 34 per cent from HK$93.4 billion a year earlier, data from the exchange shows.
During the second quarter, Chinese tech giants JD.com and NetEase together raised over US$6 billion through secondary listings in Hong Kong. Futu disclosed in its second-quarter results that their clients’ total subscription for these two IPOs had exceeded HK$15 billion. It also said the growth in its interest income was partly helped by IPO financing due to an active IPO market in Hong Kong.
“We believe that the increase in US-listed Chinese companies seeking secondary listing in Hong Kong and the surge of high-profile Hong Kong IPOs will act as major tailwinds to our growth,” said Leaf Li Hua, Futu’s chairman and chief executive.
For the three months ended June, Futu’s net profit totalled HK$236.5 million, quadrupling from HK$55.3 million in the same period a year ago. For the first half net profit rose to HK$391.3 million, from HK$78.37 million a year ago.
As of June Futu said about 32 per cent of its 954,950 registered users were paying customers. The discount brokerage said this month it had obtained an in-principal approval from the Monetary Authority of Singapore for a capital markets services licence.
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