Smartphone maker Xiaomi’s China depositary receipts set to secure green light from regulators this week

Analysts say the fast-track application is a clear sign that Beijing is determined to bolster domestic listings of big technology firms

PUBLISHED : Sunday, 17 June, 2018, 6:12pm
UPDATED : Monday, 18 June, 2018, 10:57am


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Smartphone maker Xiaomi could be given the green light for the listing of its China depositary receipts on the Shanghai Stock Exchange on Wednesday, providing a gateway for ordinary Chinese investors to eventually own a stake in the smartphone maker which is also expected to list shares in Hong Kong next month.

If it gets the nod at a hearing with the China Securities Regulatory Commission (CSRC) on Wednesday, Xiaomi will have spent just two weeks awaiting approval, a mere fraction of the minimum 18 months applicants can usually expect to wait.

Analysts say the fast-track application is the latest sign that Beijing is determined to bolster domestic listings of big technology firms.

“This quick pace of arranging an IPO has never been seen before on the mainland market,” said Ivan Li, an asset manager with hedge fund Loyal Wealth Management. “It is a clear message that the regulator wants to see an issuance of CDR shares sooner rather than later.”

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The watchdog sent Xiaomi a list of more than 80 questions last week raising concerns about the pricing of the IPO. But a source with knowledge of the CSRC’s thinking said this would not deter the review committee from granting Xiaomi approval for the flotation.

Xiaomi, founded by Chinese billionaire Lei Jun, is seeking to net US$5 billion by issuing CDRs (Chinese depository receipts) in mainland China, half the amount it is targeting in a hotly-anticipated Hong Kong IPO expected to take place in July.

Xiaomi will be the first Chinese technology firms to float CDR shares, a new fundraising tool adopted by Beijing to facilitate share flotations by overseas-funded mainland companies.

Beijing fast tracks foreign-listed Chinese tech firms’ A-share flotation with CDR system launch

Under the depository receipt system, part of a company’s shares are transferred to a custodian bank, which then sells them on an exchange abroad.

Companies like Xiaomi have conducted many rounds of financing over the past few years, often targeting prominent foreign venture capital and private equity funds.

They sported the tag “foreign-invested businesses” and found themselves barred from launching A-share IPOs in mainland China.

In line with the Beijing’s ambitions of transforming China into a powerhouse of innovation, the securities regulator began drawing up CDR rules at the beginning of this year to lure large-scale technology firms such as Xiaomi and Ant Financial Services Group, an affiliate of e-commerce giant Alibaba Group Holding.

Xiaomi had a fair value of US$65 billion to US$85 billion, nearly double Apple’s 14.5 times estimated adjusted earnings for 2019, Bloomberg data showed.

Last week, the company was asked by the CSRC to clarify its identity and the nature of its core business, based on its latest investors’ prospectus.

‘Are you an internet firm or a hardware maker?’ regulator asks Chinese smartphone maker Xiaomi ahead of IPO

The key question among the 84 sent by the CSRC asks Xiaomi to state whether it is an internet firm, as claimed, or a hardware maker, since 70 to 80 per cent of its sales are derived from smartphone sales.

The company positioned itself as an internet company in its IPO prospectus filed to the regulator.

Xiaomi has been given a month to respond to the questions.

Normally, an IPO applicant has to wait at least one and a half years before going through the CSRC’s IPO hearing.

It is not known when Xiaomi will start bookbuilding for its CDR shares even if it passes the review procedure on Wednesday.

The mainland Chinese regulator will set the date for Xiaomi to begin drawing subscriptions.