Chinese gadget maker files for $10B IPO
Xiaomi first company to list in Hong Kong after changes to regulation
HONG KONG— A gadget maker. An online delivery service. And the electronic payment company owned by the tech giant Alibaba.
These are among a spate of Chinese companies expected to open their doors to ordinary investors in Hong Kong over the next year through public listings, following a loosening of rules by the city’s stock exchange.
If many of them end up listing in Hong Kong, then China will have accomplished a major goal: keeping its hugely successful tech boom at home.
The flurry of big-name Chinese companies potentially choosing to stay home, rather than go abroad, in search of funding is part of a broader push by China, which has sought to develop homegrown champions in an array of sectors. But the new regulations, which allow companies to retain more control, have also been criticized as an encroachment by Beijing on Hong Kong’s legal system and corporate governance standards.
Xiaomi, the gadget maker, announced Thursday that it would list in Hong Kong, the first company to do so following the rule changes.
Its decision represents a victory for Hong Kong, which missed out on blockbuster stock offerings by Alibaba and other rising internet companies in mainland China in recent years. It is also a win for Beijing, which has embarked on a campaign under President Xi Jinping to nurture the development of new industries in technology and lure back homegrown stars that listed overseas in years past.
“I think it rather stuck in the throats of the leadership in Beijing that large companies had to go overseas to list and not in Hong Kong, which they view as part of home,” said David Webb, publisher of the financial and corporate governance website, Webb-site, and a deputy chairperson of Hong Kong’s Takeovers Panel.
“There has been somewhat of campaign to bring companies home and remove them from foreign jurisdictions,” Webb said.
While Hong Kong is officially a special administrative region within the People’s Republic of China, and has a separate legal and financial system, Beijing sees it as a part of the mainland. Some of China’s biggest and most exciting technology startups, such as Didi Chuxing, the ride-sharing rival to Uber, and Ant Financial, the financial arm of Alibaba, are making plans to go public over the next year.
In the past, Chinese entrepreneurs, such as Jack Ma of Alibaba, chose to list their shares in markets such as New York where they could operate as if their companies were still pri- vate. They were able to offer so-called dual-class shares, which give shareholders little say in the operations of the business.
Until last week, Hong Kong, which has stricter rules than New York, had not allowed such listings. In its filing Thursday with Hong Kong’s stock exchange, Xiaomi appeared to be taking advantage of the new rules.
The company, whose low-cost smartphones have won a loyal following not just in China but in other emerging markets like India as well, said it would raise an unspecified amount from the public in order to fund the development of new smartphones and other devices such as household gadgets. The money will also help Xiaomi pursue expansion overseas.
It could raise as much as $10 billion (U.S.), according to two people with direct knowledge of the company but not authorized to speak on the record. That would make it the second-largest listing by a Chinese technology company since Alibaba.
As part of the listing, which could come as soon as June, Xiaomi will offer dual-class shares, which allow for weighted voting rights. This will mean that Lei Jun, Xiaomi’s founder, chairperson and chief executive, will have the ultimate say over the company’s operations, rather than investors who buy its shares, even if they end up owning more stock than he decides to hold onto.
This share structure will allow the company to benefit from Lei’s “vision and leadership,” Xiaomi said in its filing.
The decision by the Stock Exchange of Hong Kong to allow dual-class shares just one week ago has sparked fierce debate here.
For the exchange, not allowing companies to list with such a structure meant it missed out lucrative listings such as Alibaba’s $25-billion initial public offering. Alibaba opted to list in New York instead, where sever- al large technology companies like Facebook and Google’s parent Alphabet operate with dualclass shares.
“There is no question that Hong Kong is under tremendous competitive pressure,” Richard Li, the Hong Kong Stock Exchange’s chief executive, wrote in a blog post following the decision.
“We are at the precipice of a gold rush of new economy companies from China, and it’s vital that we position ourselves to benefit from this development.”
But some in the city’s investor community had pushed hard to prevent Hong Kong from changing its rules, arguing that it will mean less rigorous corporate governance.
“There should not be unequal voting rights as they could allow management or minority share owners to override the wishes or best interests of majority shareholders for personal benefit and compromise accountability, leading to potential entrenchment issues,” Mary Leung, head of advocacy for Asia at CFA Institute, an association of investment professionals, said in a statement.
Some big institutional investors have criticized Hong Kong’s stock exchange for throwing out tighter regulations to compete with rivals.