Xiaomi shelves China share sale as regulators iron out new rules
Chinese smartphone maker to go ahead with Hong Kong IPO
HONG KONG— Chinese smartphone maker Xiaomi Corp. postponed a widely anticipated share sale in mainland China, saying it would proceed first with an initial public offering in Hong Kong in the coming weeks.
In talks with potential investors, the Beijing-based company recently discussed a market valuation of roughly $60 billion, according to people familiar with the matter, a far cry from the $100 billion valuation Xiaomi aspired to achieve earlier this year. The figure could change as discussions continue, some of the people said.
The company in a statement dated June 18 said it applied to China’s stock market regulator to delay a review of its proposal to issue so-called Chinese Depositary Receipts, without giving a reason. Less than a week ago, Xiaomi had submitted a plan to sell at least half its IPO shares — or more than 7 % of its total share capital — to domestic investors.
Xiaomi said Tuesday it will launch the Chinese securities “at an appropriate time” after the company lists in Hong Kong. China’s Securities Regulatory Commission in a separate statement said it would respect Xiaomi’s decision and suspend its planned review.
Beijing-based Xiaomi delayed its domestic stock sale because some details of China’s rules for depositary receipts are still being worked out, according to people familiar with the matter.
China earlier this month published guidelines for overseas-incorporated companies that want to issue yuan-denominated depositary receipts, after drafting the rules just months earlier. Xiaomi, which is incorporated in the Cayman Islands and does the bulk of its business in China, was poised to be the first company to participate in the program and had initially aimed to launch its Hong Kong and Chinese IPOs concurrently, according to people familiar with the matter.
The Wall Street Journal previously reported that Xiaomi is looking to raise around $10 billion and was recently aiming for a market valuation of $70 billion to $80 billion. A private funding round for the company afew years ago valued it at more than $45 billion.
It is unclear how much Xiaomi now plans to raise in its Hong Kong IPO now that the Chinese offering has been postponed.
The company has scheduled a press briefing for this Saturday in Hong Kong, where the offered price range and other details of its share sale are expected to be released.
Some Chinese state-owned entities are expected to serve as so-called cornerstone investors in the IPO, according to people familiar with the matter, which could help the company price its shares at the higher end of an offered range.
Some analysts said there have been concerns about the market valuation Xiaomi could fetch on the mainland because domestic investors tend to place higher premiums on technology stocks in China relative to Hong Kong.
One worry is that retail investors could suffer losses down the road if Xiaomi lists at a high price in China and the company’s financial performance falls short of expectations. Xiaomi reported a $1.1 billion loss in the first quarter of this year due to one-off accounting charges and lost money in 2017, when it generated $18 billion in revenue.
The IPO is also coming at a sensitive time for markets, with an intensifying trade dispute between China and the U.S. weighing on sentiment. Shanghai’s main benchmark stock index on Tuesday closed down 3.8 % to its lowest level in nearly two years after U.S. President Donald Trump unveiled a new plan to impose tariffs on more than $200 billion in Chinese goods.
Chinese authorities in recent weeks have raised concerns about lofty valuations of technology startups and unicorns, a term used to describe private companies with valuations of more than $1 billion. Last Monday, the state-run People’s Daily warned companies and investors against a rush of capital into tech unicorns that could turn investing into a “gamble.”
With regulators trying to “cool the frenzy over tech unicorns and squeeze out the bubble … this isn’t the most ideal timing” for Xiaomi to sell depositary receipts domestically,” said Shen Meng, director at Beijing-based investment bank Chanson & Co.