Stockbrokers, banks jockey to win over retail investors as order taking for Xiaomi’s blockbuster IPO gets underway

Local stockbrokerages and banks are jockeying to attract business from retail investors seeking to get in on the share sale by smartphone maker Xiaomi this week, rolling out special discounts and fee waivers tied to the subscription drive for the US$6.1 billion IPO, the largest of its kind globally for two years.

Individual retail investors can become owners in the company for as little as HK$4,444.33 (US$566.32), representing a single lot of 200 Xiaomi shares, available during the subscription period which runs from Monday until Thursday.

Banks and brokers could be the biggest winners from the blockbuster offering. The Xiaomi initial public offering [IPO] could bring in commission income of HK$479.3 million among the more than 500 stockbrokers and banks involved, based on the assumption that they receive an average 1 per cent of commission and that the offering prices at the top end, raising HK$47.93 billion (US$6.1 billion).

Financial firms also stand to benefit from interest payments from investors who borrow on margin to subscribe to the IPO.

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Xiaomi is the biggest IPO worldwide this year and the largest since the HK$59.15 billion listing by Postal Savings Bank of China in September 2016.

“For many stockbrokers and banks, the Xiaomi IPO would be a chance to earn a good commission and margin lending. They could also get new customers from the blockbuster IPO,” said Christopher Cheung Wah-fung, a lawmaker for the financial services sector who is also a stockbroker.

“However, my brokerage firm has not received many enquiries from investors about the IPO. This may be because the overall stock market sentiment last week was not good due to the worries over the trade dispute between the US and China. The valuation of Xiaomi is also very aggressive. Investors need to beware of the risks involved in the IPO,” Cheung said.

Xiaomi could raise up to HK$47.93 billion by offering 2.2 billion shares to global investors this week

at an indicative price range between HK$17 and HK$22 each. The company will be the first to list in Hong Kong under new rules that permit the dual-class shareholding structure.

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Emperor Capital Group, a local brokerage, will waive administration fees for investors who subscribe for at least five lots, or 1,000 shares of Xiaomi. New customers can also trade Xiaomi commission free between July 9, when the shares are due to debut trading, until July 31.

ICBC Asia will waive fees for online subscriptions to the IPO from Monday to Wednesday, while it will waive commissions for investors who trade the share on its debut.

Bright Smart Securities will offer a competitive interest rate for investors who borrow on margin to subscribe for shares in the IPO, while new customers can enjoy commission-free trading on all Hong Kong shares for seven months.

Hang Seng Bank will extended IPO subscribers HK$390,000 in margin lending for the sum of HK$208.

Meanwhile, Everbright Sun Hung Kai has set aside HK$10 billion to support margin lending for Xiaomi share subscribers.

However, not all brokers are optimistic.

“The price earnings ratio of Xiaomi is unreasonably high when compared with its peers. Our firm doesn’t offer any incentive for retail investors for the Xiaomi IPO,” said Gordon Tsui, managing director of Hantec Pacific.

Ping An Good Doctor’s IPO in April was popular with investors, but the share has since slipped below its offer price which could affect investors’ confidence, brokers said.

Alfred Yeung Ping-kwan, founding chairman of Glory Sky Group, said his brokerage’s clients are not eager to subscribe to the Xiaomi IPO.

The IPO is being priced at an indicated range of 22.7 times to 29.3 times Xiaomi’s forecast 2019 earnings. If it could priced at the top end, it would be more expensive than the current valuation of Apple and Tencent Holdings.

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Xiaomi, the world’s fourth-largest smartphone maker, is the first company to list in Hong Kong using the dual-class share structure, which allows one class of shareholders premium voting rights over other shareholders.

The listing reform, unveiled in April, sought to enhance the competitiveness of Hong Kong Exchanges and Clearing as a listing hub for technology companies with a valuation of US$1 billion or more.