Hong Kong seen winning mega-IPO from Xiaomi after reforming listing rules

Chinese smartphone maker Xiaomi is reportedly valued at as much as US$110 billion as it aims for an initial share sale in Hong Kong. The company was reportedly considering New York for its IPO.

PUBLISHED : Wednesday, 31 January, 2018, 1:53pm
UPDATED : Wednesday, 31 January, 2018, 11:41pm

Hong Kong may have won its first battle to attract more technology listings by revamping its IPO rules, with Chinese smartphone giant Xiaomi seen choosing the city over New York.

Xiaomi’s listing could be as much as US$16.5 billion, making it the biggest IPO in Hong Kong since AIA Group’s US$20.4 billion listing in May 2010.

Alibaba Group, which chose New York over Hong Kong for its US$25 billion share listing in 2014, still holds the record for world’s biggest technology IPO.

The Beijing-based company has appointed Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan and Morgan Stanley to work on its share sale on the Hong Kong stock exchange, according to a person with direct knowledge of the matter, who asked not to be named because the discussions are private.

Xiaomi would like to be the first company to list under the new IPO rules allowing for a two-tiered share structure with different voting rights, said the person. The plan is for the listing to take place in September, after the reforms have been enacted, the person said.

Winning over Xiaomi would be a significant win for Hong Kong and may pave the way for more technology companies to follow, burnishing the city’s reputation not just as a financial centre but also as a technology hub. Besides Tencent Holdings, the social media-to-gaming giant, the Hong Kong stock market is dominated by banks and industrial companies that are seen as representing the older parts of China’s economy. The city has lost out on many high-profile Chinese tech companies to the US, from Alibaba to search-engine operator Baidu, with the IPO rules governing track record and voting classes often cited as reasons.

“Not only Chinese tech companies but also overseas ones would seek to list in Hong Kong, given it’s a market with free flow of capital and the recent gesture by the Hong Kong exchange to making listings easier for them,” said Wang Chen, a partner at Xufunds Investment Management in Shanghai. “That will help to cement its position as a global financial centre.”

Hong Kong’s stock market is now the third biggest in Asia with a market cap of US$5.9 trillion, according to data compiled by Bloomberg. The markets in mainland China and Japan are bigger at US$8.3 trillion and US$6.8 trillion, respectively.

Financial stocks including HSBC Holdings, Industrial & Commercial Bank of China and China Construction Bank make up half of the weighting of the 51-member Hang Seng Index. Oil and gas giants PetroChina and Sinopec are two other companies on the measure.

Tencent Holdings, Asia’s most valuable company by market capitalisation, may be set to join the Hang Seng China Enterprise Index, known as the H-share index, after more than doubling its share price on the city’s benchmark index in the past year, while online insurer ZhongAn Online P&C Insurance and e-book publisher China Literature drew tremendous demand for its IPO.

Tencent among new-economy stocks to join H-share index

The size of Xiaomi’s share sale, founded and led by billionaire Lei Jun, has not been finalised and details could still change, the person familiar with the IPO plan said. Companies typically offer about 10 to 15 per cent of their shares for sale in an IPO. reported earlier that Xiaomi may have a valuation of as much as US$110 billion, based on 60 times its annual earnings, citing people it did not name.

Signs are emerging that more tech companies are opting for Hong Kong as their first choice for listing venues. Lufax, one of China’s major online wealth management platforms, plans to launch an IPO in April in Hong Kong, which could value the firm at about US$60 billion in what could be the city’s biggest fintech flotation.

Xiaomi was once the darling of China’s smartphone industry, beating Samsung to become the country’s top-selling smartphone brand in 2014. It has since been edged out by other domestic rivals such as Oppo and Vivo, although the company recently said its annual revenue topped US$15 billion.

Xiaomi knocks Samsung off its perch to claim top spot in India

Xiaomi pioneered the online-only model when it first started selling smartphones in 2011, making its devices available only through its online store. Its “hunger marketing” model, where consumers compete, fastest-fingers-first style for a limited supply of phones, helped increase awareness among consumers and drove demand.

The company has since expanded its product catalogue to include smart home and Internet of Things devices, including fitness trackers, water purifiers, rice cookers and air purifiers – all of which can be controlled via its app. Xiaomi has also turned its focus to expanding its offline operations, with the aim of having 1,000 of its Mi Home stores open in China by 2020.

Major shake-up predicted for China phone market as sales shrink

Xiaomi overtook Samsung to become the top smartphone brand in India in the last quarter of 2017, according to data compiled by Canalys and Counterpoint Research. Xiaomi also sells devices in several countries in Southeast Asia, Europe, and Latin America.

Additional reporting by Zen Soo