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

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A view of Hong Kong’s West Kowloon Cultural District, and Central (foreground), pictured from The Peak on July 17, 2024. Photo: May Tse

Aileen Chuang

Published: 10:00am, 2 Sep 2024

Facing liquidity challenges, affluent people in Hong Kong and mainland China are increasingly turning to private lenders and using stocks as collateral for borrowing.

As public capital markets have yet to fully recover, traditional banks remain cautious about lending. Meanwhile, property market woes continue, leaving stocks as the best collateral option for some ultra-high-net-worth individuals (UHNWIs) to generate liquidity.

“The liquidity constraints felt by UHNWIs are very real,” said Gordon Crosbie-Walsh, Asia CEO at Equities First Holdings, a US-headquartered specialist finance firm. “Real estate developers are among the clients that have been hardest hit, and they have struggled to raise financing from investment banks and private banks.”

Driven by distressed developers and wealthy families in Hong Kong, the private credit market grew to at least US$124 billion in Asia-Pacific in 2023.

“The opportunity for equity-backed financing for liquidity-constrained Chinese borrowers is enormous for us and other private credit lenders,” said Hong Kong-based Crosbie-Walsh.

Lenders expect more affluent people to borrow against stocks this year as interest rates are expected to begin falling, which should boost stock performance.