Pawnshops are big business in Hong Kong. So big in fact that the Oi Wah Pawnshop Credit Holdings Ltd. in HK is seeking to be listed on the Hong Kong Stock Exchange and it hopes to raise HK $ 98 million (U.S. $12.6 million) from an IPO. The Wall Street Journal posted an article on its “China Realtime Deal Journal Blog” (http://blogs.wsj.com/deals) yesterday, Feb. 28, 2013 entitled, “Pawn Shop Seeks Hong Kong Listing”. This article is by Robert Li and Isabella Steger. Mr. Li and Ms. Steger. The following is an excerpt from that article.
“According to its prospectus to the Hong Kong stock exchange, Oi Wah, which operates 12 pawnshops in Hong Kong, has enjoyed a net interest margin of more than 42% for each of the past three financial years on its pawn loans. That’s pretty spectacular, compared to blue-chip lender Bank of East Asia Ltd., which reported its full-year 2012 results Tuesday, with a NIM of 1.7% in the second-half of the year.
The company mainly provides short-term secured financing including both pawn loans and mortgage loans, according to its prospectus. Pawn loans are collateralized against personal properties such jewelry.
The company says in its prospectus that despite the high level of concentration of banks in Hong Kong, non-bank lenders such as pawnshops are attractive because they enjoy greater flexibility in terms of their loan sizes and types of collateral, as they are not subject to the same restrictions imposed by the Hong Kong Monetary Authority.
Based on its indicative price range of HK$0.75 to HK$0.98, Oi Wah is pitching its shares at 5.6 times to 7.4 times forecast price to earnings, which appears attractive. However, the paradox for its IPO is that the funds raised are intended to further develop its mortgage-loan business, which would see its mouth-watering NIM inevitably take a hit, given the company will then be competing heads-on with traditional lenders including banks.
Though no big funds will be drooling over the IPO given the tiny size – a HK$392 million market cap if it prices at the top end of the indicative price range – if may be worth a small punt for Hong Kong’s retail investors given the novelty factor. Oi Wah is aiming to list on March 12.”
It remains to be seen whether Oi Wah’s will be the first of many in Hong Kong to take this course of action, and whether or not pawn shops on mainland China will seek public listings themselves in the future.
Hawkeye in China
– Lex Smith