Hong Kong’s cash pile gets as Alibaba primes for the $13 billion list

HONG KONG (Reuters) – Alibaba Group’s $13.4 billion Hong Kong listing of the cash and cash equivalents at the protest-wracked financial district, just a short-term borrowing costs to shoot up back towards a decade-high marked in July.

FILE PHOTO: A Hong Kong dollar note is seen in this illustration picture to May 31, 2017. REUTERS/Thomas White/the Image/File Photo

Large Initial public offerings and share sales are usually hoover up the cash in Hong Kong is relatively small, bank-based system, it’s a temporary thing. However, the players say, Alibaba’s listing will have a far greater impact, due to the blockbuster in size, and five months of pro-democracy protests have led to a recession, and it planted fears of capital outflows.

“Timing-wise, it’s not good for the liquidity and get dragged in to the system, if there is a little bit of an outflow of capital occurs due to the protests,” said a hong Kong-based senior banker at a European bank, who asked not to be identified.

The one-month Hong Kong Interbank offered Rate (HIBOR) has increased by 100 basis points this week, to get 2.75% on Thursday, but not too far off from a decade-high of 2.99% will be highlighted in July, when protesters occupied the city in the legislature. On Friday, the competitive rate will go back to the 2.71%

These levels can be much higher than that of the other, past a large proportion of their revenue. One-month HIBOR, was 1.1% in the South African media group, Naspers sold $ 9.8 billion in Tencent Holdings shares in March 2018, and to under 2% in the run-up to the China Tower Corp listing, in the August of that year.

The climb up is unusual as well as Hong Kong interbank rates, which normally track their U.S. peers of the same age, as a result of the Hong Kong dollar peg, and the AMERICAN peers of the same age are due to the Federal Reserve’s interest rate cuts. The one-month U.S. dollar Libor interest rate is 1.765%.

“In contrast to the situation in July and August, the Federal reserve has already cut twice, but that the local rates continue to be higher. Capital outflow is concerned, seem to be very serious,” said Ken Cheung, chairman of the Asian FX strategist at Bank of Mizuho.

Hong Kong may have lost as much as $4 billion in deposits to rival financial hub Singapore is between June and August, and Goldman Sachs, have been calculated. At the end of October, the Hong Kong Monetary Authority, said that there is no natural capital outflow from the banking system.

Mr. Cheung added that inter-bank rates to be able to continue to increase, as capital outflows are concerned to keep it after the Alibaba listing, it is packed.

Beijing-headquartered, New York-listed Alibaba, began to collect the orders for the Hong Kong listing late on Wednesday, and the price of the deal is expected to be at a slight discount to US equities next week.

Mackie, Lau, head of the investment management private markets, at Standard Chartered in Hong Kong, said the money will be locked up for a week prior to the date on which the investors and their shares are allocated.

Market participants said, but they expect to receive from one month HIBOR to be covered in the neighborhood of 3%, and that there is a wide range of options for the government and the banks, as well as cash will be tight.

The banks will have to access the HKMA’s discount window and other facilities in order to meet any sudden shortages, and that the central bank would cut banks ‘ capital buffer. The HKMA cut off the buffer from the previous month, by 0.5%, the first cut since the relationship was established in the year 2015.

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“The money isn’t gone, it’s still in the system. It’s just changed hands from one bank to the other. Rates to spike, because people have to climb, not because there is no money,” says Lau.

Cash, stocks in Hong Kong dropped steadily for years, the money went into the higher yielding US assets, the HKMA argued for a currency that has been on the weak end of its band for a lot of the 2018 and 2019 at the latest.

The total account balance, a gauge of banks ‘ cash deposits with the HKMA, is down 87% from its 2015 high of HK$426 million.

Report by Noah’s Sin, and Scott Murdoch, in Hong Kong; Additional reporting by Tom Westbrook in Singapore and Sumeet Chatterjee in Hong Kong; Editing by Edwina Gibbs

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