HONG KONG (Reuters) - The Hong Kong Interbank Offered Rate (HIBOR) rose across the curve on Thursday, with investors scrambling for cash ahead of the world’s biggest initial public offering of the year at a time of tight liquidity in the domestic market.
Brewer Anheuser-Busch InBev NV (AB InBev) (ABI.BR) is seeking to raise up to $9.8 billion by listing its Asia-Pacific business in Hong Kong this month.
On Thursday, the one-month and two-week tenors shot up to 2.99% and 3.53%, respectively, their highest since October 2008, while two-month and three-month HIBOR reached their highest levels since November of the same year.
New York-listed internet giant Alibaba (BABA.N) is also hoping to raise up to $20 billion in Hong Kong’s stock market this year, which would be the largest secondary listing globally in seven years.
“We haven’t seen such a large IPO for a while, and it is happening during the dividend season when liquidity is usually tight,” said Carie Li, an economist at OCBC Wing Hang Bank, commenting on the AB InBev listing.
Analysts from Bank of America Merrill Lynch estimated in May that Hong Kong-listed Chinese companies will need to pay $55 billion of dividends this year, mostly in June and July.
HIBOR's climb lifted the Hong Kong dollar HKD=D4 to its strongest since May 2017. The currency was seen at 7.7893 per dollar, up 0.1% on the day. It is pegged to the U.S. dollar at a tight range of 7.75 to 7.85.
On top of equity market demand, the strength of the local dollar reflects a massive unwinding of the carry trade, Hao Zhou, a forex analyst at Commerzbank in Singapore, wrote in a note on Thursday.
A previously wide spread between U.S. and Hong Kong rates led investors to borrow Hong Kong dollars cheaply to buy higher-yielding U.S. dollar assets in a ‘carry trade’, spurring capital outflows and pressure on the local currency.
But that gap by-and-large closed in June. The Hong Kong dollar rose 0.33% against the greenback that month, its largest monthly gains since September 2008.
Demand for cash had also surged in June as protesters clashed with police during a mass demonstration against legislation that would allow citizens to be extradited to China. Financial institutions rushed into liquid assets, with interbank interest rates in the city shooting up across the curve.
Traders said the interest rate spike this time, however, was driven mainly by the city’s mega IPO although demand for cash had also bolstered the local currency.
Earlier this week, unrest gripped the city again as hundreds of protesters in the former British colony stormed and ransacked the legislature after a demonstration marking the anniversary of Hong Kong’s return to Chinese rule.
Aninda Mitra, senior sovereign analyst at BNY Mellon Investment Management, said Hong Kong’s credentials as a financial hub will nevertheless stay intact, not least for its role as a key fundraising center for Chinese companies.
“In that context, I don’t think the underlying bedrock of Hong Kong’s status is at risk,” he told a media event in Hong Kong on Thursday. “Will geopolitics somehow destabilize that? It’s a very long shot.”
Additional reporting by Donny Kwok; Editing by Kim Coghill and Jacqueline Wong