Xiaomi tumbles on debut

Chinese smartphone maker Xiaomi fell as much as 6% on its debut, as an escalating trade war and uncertainty about its valuation combined to dampen Hong Kong’s biggest coming-out party in two years.

The eight-year-old company traded as low as HK$16 (R27,25) compared to its HK$17 initial public offering price. That puts the company, co-founded by billionaire Lei Jun, on pace to become the worst first-day performance for a US$1-billion-plus Hong Kong IPO since 2011.

Xiaomi’s market value is now in the neighbourhood of $50 billion, becoming the world’s third largest listed maker of mobile devices but a far cry from the $100 billion touted last year.

Xiaomi’s high-profile stumble is a lukewarm showing for a smartphone label with designs on expanding globally and transforming from a low-margin hardware company into an internet services player in the mould of Apple.

Xiaomi priced its IPO at earnings multiples higher than more established tech giants, including Apple, Tencent and Facebook. It then suffered a number of setbacks, from being forced to jettison plans to sell Chinese depositary receipts in Shanghai to pricing its shares at the very bottom of the marketed range.

“Tech companies looking to list their shares will need to take a more conservative approach in pricing,” said Anthea Lai, an analyst with Bloomberg Intelligence.

That’s “as investors get more cautious about where to put their money given the prevailing trade tensions and several IPO flops recently”.

In the longer term, Xiaomi’s proponents argue that dominance in key markets from India to China and a diversifying internet of things business will help it grow into its valuation.

Xiaomi’s IPO was hailed as the biggest and most important Chinese technology debut in years. However, its tribulations began almost immediately.

It had planned to raise about $10 billion and a valuation of as much as $100 billion by taking advantage of CDRs, a new instrument Beijing pushed to entice companies to list at home.

But that fell apart when it couldn’t adequately address questions posed by regulators, including how a company that gets the vast majority of revenue from phones would pitch itself as an internet company.

When Xiaomi finalised its offer, it did so as the Hong Kong bourse went into a tailspin. – TechCentral

Tech companies looking to list their shares will need to take a more conservative approach in pricing.

Anthea Lai Bloomberg Intelligence analyst