Xiaomi Sputters in HK Listing

Xiaomi sputters in Hong Kong debut as trade war snares test case of city’s listing reform

Monday July 9, 2018 Laura He – South China Morning Post

What was billed as China’s most keenly anticipated stock sale of 2018 struggled as investors worried over risky tech stocks at a time of trade tensions. Xiaomi, the first company to raise capital under Hong Kong’s overhauled listing rules for pre-revenue start-ups or companies with multiple classes of stock, sputtered during its trading debut on the city’s exchange when investors spooked by the US-China trade war refrained from buying its shares.

Shares of the Beijing-based company, offered a week ago at HK$17 each in what was once billed as the world’s biggest initial public offer, fell by as much as 5.9 per cent in an advancing market to HK$16, before recovering to end their first trading day at HK$16.80.

“Investors are no longer that crazy about so-called new economy IPOs, as many of them have quickly fallen below their offer prices,” said Edmond Hui, chief executive for Bright Smart Securities.

“It’s no longer a guarantee of making money.”

The lacklustre debut was a blow for the world’s fourth-largest smartphone maker, which had taken a mere seven years to grow from a start-up to surpass 100 billion yuan (US$15 billion) in sales. Founded by serial entrepreneur Lei Jun in 2010, Xiaomi was the first blockbuster IPO under the new listing rules that Hong Kong’s securities regulator and stock market operator pushed through last year.

“Xiaomi’s listing signals the Hong Kong market has entered a new phase,” said the city’s Financial Secretary Paul Chan Mo-po, speaking in Cantonese during a ceremony marking Xiaomi’s trading debut. “I believe [Hong Kong’s listing reform] will prompt more innovative technology companies to raise funds in Hong Kong, so our market can better serve the real economy.”

The size of Xiaomi’s fundraising – originally aimed at US$10 billion – was trimmed by bad timing, coming after the US and Chinese governments fired the first salvoes of their trade war.

Net proceeds from the IPO were HK$23.98 billion (US$3.1 billion), after deducting underwriting fees and other relevant expenses, Xiaomi said. The company priced its stock at the low end of a price range of between HK$17 and HK$22 each.

That values the company, whose name is the Chinese phrase for millet, at US$54.3 billion, about half of the US$100 billion it had originally sought, which would’ve made Xiaomi the world’s largest IPO this year. Instead, that honour has gone to Siemens Healthineers, which raised US$5.17 billion in Frankfurt in March.

“Although the macroeconomic conditions are far from ideal, we believe a great company can still rise to the challenge and distinguish itself,” Xiaomi’s founder and chief executive Lei Jun said in a brief speech at the start of trading. “From day one, innovation has been an integral part of Xiaomi’s DNA,” he said, adding that the listing would be “a brand new start for Xiaomi.”

It plans to use 30 per cent of the proceeds for research and development, 30 per cent to expand and strengthen its capability into the internet of things business, 30 per cent for global expansion, and the remainder for working capital and other corporate purposes.

Four of the five biggest tech IPOs in Hong Kong since September are now trading below their offer prices. Lei, who founded Xiaomi in 2010 and currently holds nearly one third of the company’s stock, has been presenting Xiaomi as an internet company rather than a hardware maker, saying it should be valued as hybrid of Apple and Tencent because it is “driven by innovation”.

Companies billed as manufacturers, like tech giant Apple, tend to achieve much lower valuations than those categorised as internet firms, for example China’s Tencent.


Investors were not the first to question Lei’s categorisation. In mid June, the company shelved a plan to issue Chinese depositary receipts (CDRs) in Shanghai after the market regulator demanded answers to 84 questions, including why Xiaomi positioned itself as an internet firm.

The smartphone maker has tapped several Hong Kong and Chinese tycoons as investors, including Li Ka-shing of CK Hutchison, Pony Ma Huateng of Tencent and Jack Ma Yun, founder of Alibaba Group Holdings and owner of this newspaper. Xiaomi’s seven cornerstone investors have agreed to acquire US$548 million worth of shares with a six-month lock-up period, according to the prospectus.

US chip maker Qualcomm has committed US$100 million, the only foreign company among the cornerstone investors. China Mobile, the country’s biggest telecom operator, will also invest US$100 million, while CICFH Entertainment, a state-backed industrial fund, will be the biggest cornerstone investor with a US$192 million stake.