Xiaomi pushes ahead with Hong Kong IPO amid stand-off with China regulator

The smartphone maker has shelved a plan to issue CDRs in mainland China, after the regulator demanded answers to 84 questions including why it positions itself as an internet company

PUBLISHED : Wednesday, 20 June, 2018, 8:18pm
UPDATED : Wednesday, 20 June, 2018, 11:00pm

Chinese smartphone maker Xiaomi aims to raise as much as US$6.1 billion from its Hong Kong shares listing next month after shelving a plan to sell Chinese depositary receipts (CDRs) in mainland China, according to people familiar with the matter.

Xiaomi plans to issue around 2.18 billion shares in its Hong Kong stock market debut, scheduled for July 9, at an indicative price range of HK$17 to HK$22 per share, collecting up to HK$48 billion (US$6.1 billion), the sources said.

Chinese smartphone giant Xiaomi’s Hong Kong IPO will launch in July

That would make it Hong Kong’s largest IPO since Postal Savings Bank of China’s US$7.4 billion float in September 2016, and also the world’s biggest tech listing since Alibaba’s US$25 billion IPO in 2014.

The company will start taking institutional investors’ orders on Thursday.

On Tuesday, Xiaomi announced it would postpone its original plan to issue CDRs in the domestic market, and instead go public in Hong Kong first. The company said it will reconsider the CDR plan at a later stage.

The CDR system, which is being piloted in China, allows domestic investors to buy shares in overseas-listed firms.

Previously, Xiaomi had been aiming to raise as much as US$10 billion in its IPO, splitting the shares between Hong Kong and Shanghai.

Xiaomi did not provide a reason for its sudden decision to change tack, but it comes after the regulator appeared to challenge the original pricing of the IPO, which would have valued the company far higher than Apple in terms of price-to-earnings. The China Securities Regulatory Commission (CSRC) sent Xiaomi a list of 84 questions last week in response to its latest IPO prospectus.

The watchdog asked Xiaomi to explain why it positions itself as an internet company given that its smartphone sales accounted for more than 70 per cent of its total revenues, while revenues from its internet business make up less than 10 per cent. Internet firms tend to attract higher valuations than those categorised as manufacturers.

Massive blow for Beijing as Xiaomi postpones China listing plans

Other questions delved into Xiaomi’s business model, details of its financial conditions, user figures in its internet business, and future profitability.

On Friday, the CSRC warned new-economy companies not to overinflate their valuations before IPOs, as potential wild price swings would hurt smaller investors, who are less capable of identifying and withstanding risks. Individual investors account for 90 per cent of the total pool on the A-share market.

The CSRC said on Tuesday it “respected” Xiaomi’s decision.

China’s securities regulator warns new economy firms from overinflating valuations for IPO

The regulator singled out Ping An Good Doctor, ZhongAn Insurance, China Literature, Yixin Group, and Razer as examples of Hong Kong IPOs that have been hugely oversubscribed and therefore priced at the high end of their range, and then gone on to experience wild price swings after listing.