Xiaomi’s IPO to be Divided Between CDRs and Shares on the Hong Kong Exchange
June 18, 2018
Xiaomi’s is valuing the company at between US$60b and US$100b in an IPO, despite the loss of US$1b in Q118. Xiaomi Corp. is considering raising about half of its proposed $10 billion initial public offering from Mainland Chinese investors, people familiar with the matter said. The company may seek about $5 billion from the sale of Chinese depositary receipts (CDR) and a similar amount from selling shares in Hong Kong. The split will depend on demand in the two markets and may change before the IPO. The company is targeting a valuation of about $75 billion although that number could also shift. Xiaomi’s IPO, the largest since Alibaba’s 2014 debut, comes as China accelerates a push to attract more blockbuster listings through CDRs that enable a version of the shares to be traded on domestic exchanges. Selling more equity to local investors aligns Xiaomi with Beijing’s policy goals and helps it command a higher valuation. On Tuesday, JPMorgan, Morgan Stanley and CLSA -- all of which are sponsoring or arranging the IPO -- put Xiaomi’s price tag at anywhere from $65 billion to $100 billion depending on the metrics used. The share sale will be used to fuel expansion beyond China and bankroll the development of devices and media services.
Xiaomi's sizzling top-line growth is offset by thin and volatile profitability. China is still developing the final rules for CDRs and raising half the money through such securities would represent a much larger proportion than expected. Reuters reported earlier this month that the company planned to sell about 30 percent of the stock to mainland investors. In its CDR prospectus, Xiaomi said it plans to use about 40 percent of the proceeds to enlarge its global footprint. Xiaomi reported a 7 billion yuan ($1.1 billion) net loss on revenue of 34.4 billion yuan in the first quarter.
“In 2018, the company plans to enter or consolidate positions in Southeast Asian and European markets,” Xiaomi said in its Chinese prospectus, which didn’t mention a fundraising target. It opened its first store in Paris last month, while Senior Vice President Wang Xiang has said multiple times the company is looking to sell smartphones in the U.S. and compete against Apple Inc.Xiaomi survived a challenging 2016 to roar back to growth in 2017, bouncing back by revamping its sales model and expanding in India, where it rivals Samsung Electronics Co.as the biggest vendor. Led by billionaire co-founder Lei Jun, the company’s IPO would be the world’s largest first-time share sale since Alibaba Group Holding Ltd. listed in the U.S. in 2014. The IPO is jointly sponsored by banks including CLSA, Goldman Sachs and Morgan Stanley in Hong Kong and CITIC Securities in Mainland China.
The Beijing-based company saw sales from more lucrative smart-home devices and Internet services grow as a proportion of overall revenue in the first quarter. Roughly 31.8 percent of Xiaomi’s revenue in 2018’s first three months came from products such as air purifiers and scooters and online services such as mobile apps, according to the filing. Those two segments contributed 29 percent of sales in 2017. Its biggest business, smartphones that barely make a profit, declined in importance to just 67.5 percent of sales from more than 70 percent in 2017. Xiaomi said it made a profit excluding one-time items of 1.038 billion yuan in the first quarter.