Follow the hot money

When there are already not many activities planned under the threat of Covid-19, we still see rare, exciting events being cancelled at the eleventh hour.

The long-awaited inaugural flight under the Singapore-Hong Kong air travel bubble arrangement was rescheduled last minute at 5 p.m. the day before its official takeoff. Earlier this month, the high-profile dual listings of the Ant Group in Shanghai and Hong Kong was also suspended by the Chinese authorities two days before its public debut.

With 872 times oversubscribed, the Ant Group IPO would have raised a historic US$37 billion that split evenly between Hong Kong and Shanghai. Banks in Hong Kong had been flooded with high liquidity in the last two months. The Hong Kong Monetary Authority was forced to sell HK$251 billion (S$44.07 billion) Hong Kong dollars into the market to stop its currency from breaking the US dollar peg. With the sudden listing suspension, investors foresaw a massive reduction of the company’s IPO value, hot money immediately fled from the country – much to the relief of small stock markets including the SGX.

When IPOs and properties ceased to be ATM machines

When a mega legend turns out to be a massive let-down, there are far-reaching consequences.

For one, many investors (or speculators) are betting on the biggest IPO in history for an unprecedented opportunity to make big easy money. Who would have known that Christmas this year would be over well before December?

Retail investors were screwed. Over 1.5 million investors lost a total of HK$500 million (or S$87 million) for administrative fees of margin trading accounts alone. And this was just in Hong Kong.

It is not a secret that many so-called super-wealthy grow their fortunes by playing the high leverage game. Banking on low interest rates, they acquire high-end commercial or residential properties with huge bank loans. Then went on to refinance them with even bigger loans from another bank to raise more funds. These properties went through third and subsequent rounds of refinancing with other banks for more cash.

As Ant Group’s Jack Ma said in his fatal speech at the Shanghai financial forum, systemic risk is not an issue in China, and Chinese banks are like pawn shops. Apparently, the facts he highlighted are not only confined to China.

“If you borrow 100,000 yuan from the bank, you are a bit scared; if you borrow a million yuan, both you and the bank are a little nervous; but if you take a 1 billion yuan loan, you are not scared at all, the bank is.”

When commercial and residential rentals took a big hit due to Covid-19, high-end properties ceased to be ATM machines. On the other hand, businesses affected by the pandemic are not limited to the aviation, travel and retail industries. What can save these companies from bankruptcy?

That’s why so many have pinned their hope on the Ant Group IPO and couldn’t wait to jump on the Ant life-saving boat. Now they are desperate to find an alternative ATM machine to repay their debts – the next IPO, the stock market or Bitcoin.

Trim your sails fast

For the whole month of October, not a day passed by without a financial analyst commenting on the high-profile Ant Group IPO. But after its abrupt halt, financial institutions were quick to brush off the hiccup, turn around to show support for the Chinese government and praise the regulators for doing the right thing, despite their clients losing millions in the IPO catastrophe.

With US and Europe still in deep shit of Covid-19, while Japan and Korea are battling new outbreaks this long winter, company spokespersons must be quick to trim their sail and jump on the China life-saving boat. Everyone has a stake in China’s economic recovery. Our fortunes rely on a rebounding China.

Last Thursday, there was a Bloomberg article titled “DBS CEO Welcomes China Fintech Clampdown After Ant Scrutiny“.

“Over time you will start getting a more level playing field, and you’ll start getting a proportionate and even regulatory response to all participants in the market,” CEO of DBS Bank Piyush Gupta said in the Bloomberg Television interview.

Mr Gupta’s comments are interesting:

1) We all know that curbing rapid growth and high leverage of micro-lenders, or creating a more level playing field for fintech companies are only excuses to kill Jack Ma’s IPO plan. Calling the global banking system an “old people’s club” and Chinese banks “prawn shops” are far more detrimental. There is a more courteous way to tell someone being blacklisted: Sorry, we can’t admit you to the club, for safety and regulatory reasons.

2) It is true that the Ant Group and Tencent-backed Sea Ltd. is applying for a digital banking license in Singapore, threatening the position of DBS in Southeast Asia. But DBS is Asia’s safest and best bank. Why should they be afraid of a Chinese company that can’t even decide whether it should assume a technology or financial identity?

3) Above all, GIC and Temasek both invested in Ant’s 2018 funding round. In early October, both were considering participating in the Hong Kong and Shanghai listings, with rumors that GIC was planning to invest more than US$1 billion in the IPO.

The cash cow of the Ant Group is not Alipay but different offers of micro-loans. Using the fintech platform, without the pledging of any collateral (such as properties), anyone can borrow as much money as they need. This is even better than credit cards that still have credit limits based on borrowers’ income. In fact, micro-loans is the company’s most profitable business and occupies 40 percent of the group’s revenue in the first six months this year.

So, is the Ant Group a technology company (in fintech), a financial institution (like a money lender), or just an insect horde?

Easy money from other big bets. Be quick!

Investors are facing a dilemma: Leaving hard cash in the bank with close to zero interest rates does not feel right. But there is a serious shortage of good investment opportunities in the market. For fund managers, to justify their existence and management fee, they are forced to look for high-risk high-return deals.

A recent study titled “Only Gamble in Town”; conducted by finance academics in the University of Miami, University of Technology in Sydney and University of Da Nang in Vietnam, found that the dollar value of the gambling in the stock market is over three times the combined global total of activities at casinos, online gambling, gaming machines, bingo/keno, lotteries, horse tracks and sports betting. (MarketWatch, October 31, 2020)

In Singapore, the MAS data shows that Singapore bank lending was down for 7th straight month in September. The only exception was loans for share financing that defied the odds to grow 6.9 percent to $1.87 billion from $1.75 billion in August.

And thanks to local gamblers. Their money spent in casinos finally helped Gentings back into the black. in the 3rd quarter. Revenue and earnings of the Singapore unit beat market expectations. Genting’s share price jumps to five-month high on surprise earnings rebound.

More cheap money is lining up and awaiting for anyone looking for quick easy money. China’s second largest developer Evergrande who was in serious trouble last month just won approval to be listed in the Hong Kong Stock Exchange – the most promising route to raise cash to pay off an astronomical debt of US$120 billon.

In the past, a company went IPO because it had a track record of revenue growth and wanted to give the public the chance to invest in it to further expand its business. These days, a company goes IPO for the purpose of raising cash to settle huge debts because it has no way out.

Last week, KE Holdings successfully raised US$2.1 billion after selling 35.4 million new shares. Besides SoftBank, KE’s other backers include Hillhouse Capital and Tencent Holdings. The brokers included Goldman Sachs, Morgan Stanley, JPMorgan and China Renaissance Holdings.

Just last November SoftBank invested US$1.35 billion in KE Holdings, a Chinese company with a national chain of physical real estate offices that has been around for almost two decades. KE owns Beike, a two-year-old digital platform that helps match buyers and sellers with artificial intelligence. Beike has yet to make a profit but is valued by the banks at US$20 billion.

Does the picture below with Beike’s founder Zuo Hui look familiar to you?

Softbank is recycling an old tactic. The media crave for flamboyant founders or CEOs to deliver great speeches and good shows. When WeWork was under Softbank, it was making a loss of US$1.9 billion a year, yet it could still be valued at US$47 billion before IPO. Banks brokering the deals are masters at coming up with astronomical worth for these “unicorns”, to ensure that everyone can make big money from the IPO.

What about Jack Ma’s great speeches and photos widely publicized by the media?

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