How Loans Work in Hong Kong?
Although there are a variety of different loans available to you, we’re going to discuss primarily stock loans.
The Hong Kong Stock Exchange, or HKSE, is the second largest stock exchange in Asia, right behind Tokyo’s Stock exchange. With over 2000 listed companies, making up an impressive combined market capitalization, a lot of people want to get involved in it. The HKSE, also referred to as “SEHK” or “HKEx” in some places, is a publicly traded company itself – its stock code is 0388.
This vibrant marketplace offers many different methods of financing that are available to any stockholder. For the most optimal clarity and efficiency, every HKSE loan is recommended to be processed through CCASS, or the Central Clearing and Settlement System.
Here, we’ll discuss what makes stock loans for Hong Kong so favorable and how the securities lending for this market works.
HKSE Stock Loans
The most practical and efficient solutions to raising immediate capital for a stock owner tends to be non-transfer of title stock loans. Once you are a stock loan participant, you are able to access the majority of the current amount of your underlying securities position.
The benefit of this is that you can access that value all the while retaining the potential for growth in the future and maintaining access to the various securities.
How does an HKSE loan work?
- Stock loans for Hong Kong will provide the borrower with liquidity.
- A stock loan will give a borrower a hedge against the market volatility.
- A stock loan creates an interest-only, simple loan vehicle.
effective yet incredibly simple process of utilizing stock loan transactions is
designed to give you, the borrower, the liquidity you need. In doing so, you
retain your access to any asset appreciation that may occur in the future.
The stock loan vehicle comes in different variations all around the world, but the model remains primarily the same:
- The client contacts the Lender to request loan terms.
- The Lender reviews the request in order to analyze the collateral. They then provide a sheet of terms.
- The terms are reviewed by the client who goes on to sign the document if they are agreeable.
- A loan contract is issued by the Lender, followed by a control agreement.
- The client reviews the documents and then signs the control agreement and the contract. The client will then deposit the agreed upon collateral amount into the account.
After all of the paperwork and formalities are complete, the lender will transfer the loan to you. As the client, you would simply need to make quarterly payments for the interest on your loan until you complete the repayment and the repatriation of the securities.
How Is the Hong Kong Stock Market Different?
In a lot of countries, the only kind of financing that clients are able to invest in are margin loans. While this is a solid option for many people, there are benefits to having both margin loan options and private, non-recourse loan options in more developed regions. Both types of financing compete with each other and are therefore able to provide more liquidity to the borrowers.
Clients in Asia and Europe are a little more accustomed to non-recourse stock financing, also known as stock secured loans or share financing. Easy Stock Loans has years of experience in the industry, so our team has the advantage of being able to offer superior financing solutions for Chinese and other Asian consumers who are in need of safe and affordable liquidity. Easy Stock Loans has interest rates and loan-to-values that are highly competitive and often above the competition within the Hong Kong Stock Exchange.
The normal loan-to-value amount for these kinds of transactions can range from 50% to 60%. This includes margin calls as well as no kind of recourse. The interest rates for most of these cases is 6%.
A significant portion of our clients at Easy Stock Loans elect to strategize their borrowing in case there is another global market upset. They do so by borrowing against an amount of their own total shareholdings. This hedge against potential market downturn is a smart and safe strategy. The bottom line is that it helps a lot of people feel more secure in their loans. Other clients who have concentrated positions within a single, lone security may decide to borrow against their own securities as a more basic asset hedge.
If you are interested in securing your position with a hedging strategy, contact a loan adviser for more information.
Strategies for Shareholder Hedging
Both former and current executives at public companies generally own concentrated positions on a single security. The widely accepted diversification principles need to be upheld, however. As such, the executive is often forced to sell part of their portion of the position. In order to buy other assets, they need to pursue the principle of diversification, which may seem like the only option.
Easy Stock Loans is well-versed in all of the ins and outs of this business, and our experienced team can work with you one-on-one to provide an alternative route to diversification: the stock loan. This will allow an executive to take a minority stake of their various holdings and borrow against it. In turn, this frees them up to invest in other assets such as private placements, real estate, and new business ventures. The client is able to stay open to the upside potential of their concentrated position while simultaneously being able to release liquidity for other investments thanks to this executive hedging strategy.
Director, Executive Officer, or Large Shareholder
Directors, executive officers, large shareholders, and other affiliates of public companies tend to find themselves needing additional capital. However, they may be unsure of how to correctly monetize their holdings. Some larger global institutions offer liquidity solutions to their clients, but they are minimal and typically only work for the biggest clients who are associated with the blue-chip firms.
Easy Stock Loans is able to offer a range of financing routes, including the HKSE loan, for any public company affiliates. Whether you are looking for a compliant margin loan, a managed equity line, or a purchase of restricted stock, our dedicated team will work with you to find the perfect financing solution.