How to make a 56,800% re­turn with Hong Kong’s worst ever IPO

The Star Malaysia - StarBiz - - Foreign News -

HONG KONG: Xiaomi Corp is a per­fect ex­am­ple of how tak­ing a com­pany pub­lic can make a select num­ber of share­hold­ers a lot of money, even if the IPO flops.

The stock lost about 30% in the six months that fol­lowed its Hong Kong de­but, mak­ing it the city’s worst-per­form­ing ini­tial pub­lic of­fer­ing (IPO) with a value of at least US$3bil, ac­cord­ing to data com­piled by Bloomberg. Sell­ing pres­sure in­ten­si­fied this week after a manda­tory hold­ing pe­riod for some in­vestors ex­pired on Wed­nes­day.

For those who snapped up stock in Xiaomi’s ear­li­est fund­ing round, of­fload­ing the shares this week still proved to be hugely prof­itable. They paid as lit­tle as 1.95 Hong Kong cents for a slice be­tween Sep­tem­ber 2010 and May 2011, ac­cord­ing to the Bei­jing-based com­pany’s prospec­tus. Al­most four bil­lion shares were sold at that price. Early hold­ers could have pock­eted a 56,823% profit if they sold at Tues­day’s close of HK$11.10, with­out ad­just­ing for stock splits.

You can’t blame in­vestors for rush­ing to lock in those gains be­fore things get worse for Xiaomi.

An­a­lysts have been trim­ming their profit and sales fore­casts, blam­ing China’s slow­ing smart­phone mar­ket and in­ten­si­fy­ing com­pe­ti­tion. Xiaomi was one of the most hyped IPOs of 2018, with bankers ini­tially tout­ing a val­u­a­tion of as much as US$100bil. The com­pany’s mar­ket cap­i­tal­i­sa­tion has dropped to about US$30bil.

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