Xiaomi raises $4.7b in Hong Kong IPO

The weaker-than-expected response from investors raises questions about the prospects for other Chinese technology companies preparing to list in Hong Kong under the newly instituted weighted voting right (WVR) structure that allows founders to retain control even after their equity interest has fallen below 50%. Meituan-Dianping filed for an IPO two weeks ago and is said to be seeking to raise at least $4 billion at a valuation of $60 billion.

Xiaomi was also expected to lead the way on Chinese Depository Receipts (CDR) – a means through which companies that are either listed overseas or structured offshore can sell shares in their domestic market – having received the first approval to issue last month. However, that plan has been shelved due to a failure to agree terms with local regulators.

The company sold 2.18 million shares in the Hong Kong offering at HK$17.00 apiece, the bottom end of the indicative range, according to a filing. When the IPO launched, Xiaomi was said to be targeting a $10 billion offering and a valuation of up to $100 billion. Seven cornerstone investors, including a private equity fund run by China Development Bank, covered HK$4.29 billion of the offering.

Even a $54 billion IPO would have seemed unlikely as recently as three years ago. Established in 2010, the company found early success selling handsets at less than half the price of products with comparable specifications. In addition to phones, Xiaomi launched the MIUI operating system and messaging service MiTalk. As the company gained traction, its valuation rose. In late 2014, Xiaomi raised $1.1 billion at a valuation of $45 billion, briefly becoming the world’s most valuable technology start-up.

However, this was followed by a difficult two-year period in which handset sales were down amid rising competition from the likes of Oppo and Vivo, supply chains were challenged, and ambitious plans for international expansion weren’t delivering. Xiaomi overcame its troubles in part due to an online-to-offline retail strategy and a start-up portfolio constructed with a view to creating a technology ecosystem.

Xiaomi generated RMB114.6 billion ($18 billion) in revenue last year, up from RMB68.4 billion in 2016. Smart phones still accounted for 70% of sales despite ongoing efforts to diversify into internet services and lifestyle devices. Over the same period, the company swung from a net profit of RMB491.6 million to a loss of RMB43.9 billion. The loss was largely driven by changes in the fair value of convertible redeemable preferred shares.

Lei Jun, the company’s founder, holds a 29.4% stake, while Lin Bin, another founder, has 12.47%. Morningside Ventures and Qiming Venture Partners – which provided Xiaomi’s $10 million Series A round in 2010 – own 13.28% and 3.71%, respectively. Other investors include DST Global, Matrix Partners China, Hopu Investment, IDG Capital, Shunwei Capital, Nokia Growth Partners, Dragoneer Investment, All-Stars Investment, and Ratan Tata’s RNT Associates.

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• Topics
• Greater China
• Technology
• IPO
• China
• Xiaomi
• Hong Kong (China)
• TMT
• Morningside Technologies
• Qiming Venture Partners
• DST Advisors
• All-Star Investments
• IDG Capital Partners