Xiaomi said to consider seeking RM20b from CDR sale


BEIJING • Xiaomi Corp is considering raising about half of its proposed US$10 billion (RM39.86 billion) initial public offering (IPO) from mainland Chinese investors, people familiar with the matter said.

The company may seek about US$5 billion from the sale of Chinese depositary receipts (CDRs) and a similar amount from selling shares in Hong Kong, the people said, asking to not be identified as the details are private. The split will depend on demand in the two markets and may change before the IPO, they said. The company is also targeting a valuation of about US$75 billion although that number could also shift, the people said.

Xiaomi’s IPO, the largest since Alibaba Group Holding Ltd’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.

Yesterday, JPMorgan Chase & Co, Morgan Stanley and Citic CLSA Ltd — all of which are sponsoring or arranging the IPO — put Xiaomi’s price tag at anywhere from US$65 billion to US$100 billion depending on the metrics used.

“Giving mainland investors more access to Xiaomi’s shares will definitely help it balloon its valuation,” said James Yan, an analyst with consultancy Counterpoint. “Xiaomi’s entire ecosystem is built in China: All of its partner companies from makers of drones to vacuum cleaners, see mainland China as their single most important market and so does Xiaomi.”

The eight-year-old firm published its first prospectus for CDRs in Shanghai on Monday, disclosing a loss of more than US$1 billion in the March quarter, as it begins gauging demand for the IPO. The share sale will be used to fuel expansion beyond China and bankroll the development of devices and media services.

The company’s projected valuation has fluctuated amid concern about its prospects: People with direct knowledge of its plans are expecting anywhere from US$60 billion to US$100 billion for the Chinese smartphone maker. The company, which is expected to price and list over the summer, declined to comment beyond its filing.

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% of the stock to mainland investors.

In its CDR prospectus, Xiaomi said it plans to use about 40% of the proceeds to enlarge its global footprint. It reported a seven billion yuan (RM4.38 billion) net loss on revenue of 34.4 billion yuan in the first quarter (1Q).

“In 2018, the company plans to enter or consolidate positions in South-East 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 VP Wang Xiang has said multiple times the company is looking to sell smartphones in the US 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 firsttime share sale since Alibaba listed in the US in 2014.

The IPO is jointly sponsored by banks including CLSA, Goldman Sachs and Morgan Stanley in Hong Kong and Citic Securities Co Ltd in mainland China.

The Beijing-based company saw sales from more lucrative smarthome devices and Internet services grow as a proportion of overall revenue in the 1Q. Roughly 31.8% 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 exchange filing. Those two segments contributed 29% of sales in 2017.

Its biggest business, smartphones that barely make a profit, declined in importance to just 67.5% of sales from more than 70% in 2017. Xiaomi said it made a profit excluding one-time items of 1.04 billion yuan in the 1Q.