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Banks, investors hoard cash in anticipation of Alibaba's 'giant' listing, push up interbank lending rate

Chad Bray chadwick.bray@scmp.com

A gauge of Hong Kong's bank funding costs spiked to its highest level in more than a month this week, as investors and financial institutions stashed away cash in anticipation of a massive secondary listing by Alibaba Group Holding in the city.

Alibaba, the parent company of the South China Morning Post, won approval this week to sell up to US$15 billion of shares on the Hong Kong stock exchange, five years after it chose New York over the city for a record US$25 billion initial public offering. The listing would the biggest globally this year, beating Uber Technologies' US$8.1 billion IPO in New York in May.

The one-week Hong Kong interbank offered rate (Hibor) jumped 63 basis points to 1.92 per cent on Monday and stood at 2.57 per cent on Wednesday.

The one-week Hibor had not topped 2 per cent since September 30 when Budweiser Brewing Company APAC's shares debuted following its US$5.8 billion IPO. At the time, the Budweiser IPO was the biggest offering on the Hong Kong stock exchange this year.

The two-week Hibor rose 58 basis points to 2.09 per cent on Monday, its highest level since the end of September. It topped 2.64 per cent on Wednesday.

DBS economist Samuel Tse said the recent spike in the Hibor was driven partly as a result "of banks, of financial institutions, of investors holding their money" to prepare for the Alibaba listing.

What does Alibaba's secondary listing mean for investors?

"The Alibaba IPO is a giant IPO," Tse said. "That will tighten liquidity."

The Hong Kong dollar also strengthened this month to 7.83075 per US dollar on Wednesday. The currency is pegged to the US dollar and typically trades in a band of between 7.75 and 7.85 against the US dollar.

Alibaba's listing is expected to raise between US$10 billion and US$15 billion and give an untapped pool of investors in Asia, including those in mainland China, access to the technology and e-commerce company's stock for the first time. It is expected to debut on the Hong Kong stock exchange later this month.

The company plans to retain its US listing, but hopes a listing closer to home will allow it to achieve a higher valuation as its customers will be able to invest directly in the stock, according to a person familiar with Alibaba's motivation.

The listing is a boost to Hong Kong Exchanges and Clearing, the city's bourse operator, in its annual battle with the New York Stock Exchange and Nasdaq for the title of top fundraising market globally. It comes after months of protests and civil unrest in Hong Kong have weighed on the city's economy and caused some companies to delay listings earlier this year.

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This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.