Hello, my China, says lo­cal cell gi­ant

Sunday Times - - Business Regulation -

● Chi­nese smart­phone gi­ant Xiaomi has filed for an ex­pected $10-bil­lion (R126-bil­lion) list­ing on the Hong Kong stock ex­change in what would be the world’s big­gest flota­tion since 2014.

The phone maker, founded in 2010, would be the big­gest float since Chi­nese on­line re­tail be­he­moth Alibaba listed in 2014, po­ten­tially valu­ing the Beijing-based com­pany at $100-bil­lion.

Xiaomi has grown into a pow­er­house of phone sales as the world’s fourth-largest smart­phone com­pany. It is one of the top play­ers in China’s smart­phone mar­ket, record­ing sales that far out­strip US ri­vals such as Ap­ple.

Its mod­els have proved a hit, with midrange prices that un­der­cut prof­itable pre­mium phones from Sam­sung and Ap­ple.

The list­ing is ex­pected to raise $10-bil­lion, while its fil­ing has re­vealed the young com­pany’s fi­nan­cial re­sults for the first time. Xiaomi recorded profit of $1.9-bil­lion, with $18-bil­lion of rev­enue last year. The float is ex­pected in the sec­ond half of this year.

The com­pany saw its sales slow in 2016, but in 2017 these re­bounded by al­most 70%.

“As far as we know, apart from Xiaomi, there has never been an­other smart­phone com­pany that has suc­cess­fully re­bounded af­ter a de­cline in sales,” said founder and chair­man Lei Jun.

The float would make Lei one of China’s rich­est busi­ness­men. He al­ready has a net worth of $12.5-bil­lion, but the float could add to that.

Lei, 48, has been com­pared to Steve Jobs, although he has said that while he would have been “hon­oured” by the com­par­i­son as a 20-year-old, now he “[doesn’t] want to be con­sid­ered sec­ond to any­one”.

The com­pany has said it would en­sure value by set­ting a profit cap of 5%, a highly un­usual move. In its list­ing doc­u­ments, Lei said if its net mar­gin ex­ceeded 5%, it would re­turn the ex­cess to its users.

While pop­u­lar in China, Xiaomi has grown into the top smart­phone brand in In­dia. It has also be­gun to mar­ket its phones in Europe through stores in Spain, and its fil­ing said it planned to tar­get Europe for fu­ture growth. Xiaomi re­ported a surge in rev­enue last year, although it has lost ground in the Chi­nese smart­phone mar­ket to lo­cal ri­vals.

“For Xiaomi, the tim­ing is right,” said Sammy Li, a Hong Kong-based part­ner at Ho­gan Lovells.

“Hi-tech com­pa­nies tended to go to Nas­daq be­cause it was a more ma­ture mar­ket and there was a bit more flex­i­bil­ity in rules over vot­ing rights. Un­til re­cently, Hong Kong

Un­til re­cently, Hong Kong did not al­low these more un­usual struc­tures Sammy Li Part­ner with in­ter­na­tional law firm Ho­gan Lovells

did not al­low these more un­usual struc­tures.”

Sour­ing US re­la­tions with China may cause more Chi­nese tech com­pa­nies to look for fund­ing in their do­mes­tic mar­ket. Smart­phone com­pany ZTE was blocked from sell­ing its phones in the US, while Huawei’s plans for a deal with US net­works failed.

“The ZTE saga will not have helped in terms of sen­ti­ment,” Li said, “although Xiaomi will have been plan­ning their move long be­fore this.”

The list­ing would be a boon for the Hong Kong stock ex­change, which has re­laxed its rules to make it eas­ier for com­pa­nies to list.

While the Asian ri­val to the New York stock ex­change had a slow 2017, in­vestors and bankers hope the mar­ket could see up to $500-bil­lion of tech­nol­ogy floats, as Chi­nese tech firms ma­ture and choose their lo­cal mar­ket for a list­ing.

Lon­don

Pic­ture: Reuters

A man walks past a Xiaomi store in Shenyang, Liaon­ing prov­ince, in China.

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