Chinese tycoons are using stock to borrow from private lenders as bank liquidity dries up

South China Morning Post, Mon, September 2, 2024

Facing liquidity challenges, wealthy individuals in Hong Kong and mainland China are increasingly turning to private lenders, using stocks as collateral. Traditional banks remain cautious about lending due to ongoing property market issues and slow recovery of public capital markets. Private credit markets in Asia-Pacific, driven by distressed developers and wealthy families, grew to at least $124 billion in 2023.

Private credit lenders, like Equities First Holdings, are seeing significant demand from Chinese borrowers. Loans are typically secured with Hong Kong-listed stocks at fixed rates of 3.5% to 4.0%. China accounts for a large portion of these loans, with Equities First’s Asia-Pacific loan portfolio growing almost 2.8 times over the past four years.

Family offices in Asia-Pacific have also increased their equity allocations, reaching the highest global ratio at 40%. As interest rates are expected to fall, demand for equity-backed financing is likely to grow, with borrowers seeking low-rate financing for various purposes.

Private banks, distinct from private credit lenders, emphasize careful assessment of financing options and stress the importance of financial resilience, investment diversification, and maintaining adequate buffers against market volatility.