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22 Jun, 2018

$6.1 billion World’s Biggest IPO

$6.1 billion World’s Biggest IPO

Xiaomi Corp. started taking orders for the world’s biggest initial public offering in nearly two years, sharply curtailing its earlier valuation ambitions as it seeks to raise up to $6.1 billion in Hong Kong.

China MobileChina Mobile Ltd, the nation’s biggest wireless carrier, and U. S. chip giant Qualcomm Inc. are among firms that agreed to buy Xiaomi stock as cornerstone investors. The smartphone giant expects to take orders from institutional investors through June 28 and aims to start trading in Hong Kong July 9, according to terms for the deal obtained by Bloomberg.

Xiaomi and existing investors are offering 2.18 billion shares at HK$17 to HK$22 apiece, according to the terms. The range values the Beijing-based company at $53.9 billion to $69.8 billion. That could rise to as much as $70.3 billion if a so-called over-allotment option is exercised.

Top Xiaomi executives had pushed for an IPO valuation of as much as $100 billion when they began listing preparations last year, Bloomberg News reported at the time. The tussle over valuation stems partly from mixed messages about what Xiaomi does. While 70 percent of revenue comes from selling smartphones, co-founder Lei Jun insists that its real goal is to be an internet services company making money off ads and online games.

Xiaomi’s abrupt withdrawal from a plan to tap mainland investors also reduced its overall fundraising goal, while the uncertain outcome of an increasingly strident U. S.-Chinese dispute over trade cast a pall over global markets.

«It damaged investors' confidence," said Nicole Peng, China research director at consultancy Canalys. «Xiaomi also has overseas expansion plans, including in the U. S. This is a major issue considered by Chinese vendors and investors, whether the prospect of an entry into Western markets has been affected by the trade conflict.»

Xiaomi, led by serial entrepreneur Lei Jun, was the first to file for a Hong Kong IPO with a weighted-voting rights structure after the city’s bourse changed its rules in April. The deal could become the world’s biggest first-time share sale since September 2016, when Postal Savings Bank of China Co. raised $7.6 billion in a Hong Kong IPO, data compiled by Bloomberg show.

The IPO price range translates to 22.7 times to 29.3 times Xiaomi’s forecast 2019 earnings, people with knowledge of the matter said. The figures assume that a so-called over-allotment option is fully exercised, according to one of the people. The price range values the company at 39.6 times to 51.3 times this year’s estimated profit on that basis, the person said.

State-owned conglomerates China Poly Group and China Merchants Group Ltd. are among seven cornerstone investors that have committed to buy about $548 million of stock in the offering, according to the terms. Qualcomm and China Mobile Ltd each agreed to invest $100 million, the terms show.

Chinese express-delivery firm SF Holding Co. and policy lender China Development Bank Corp.'s private equity arm have also committed to purchase shares in the IPO.

Xiaomi was earlier planning to seek about $10 billion combined from the Hong Kong IPO and a near-simultaneous offering to mainland Chinese investors. It has since delayed its plan to float so-called Chinese depositary receipts in Shanghai, which was part of the government’s long-term goal of getting its biggest technology firms to list locally.

Morningside Group and four Xiaomi co-founders are offering some existing stock in the IPO, according to the terms. CLSA Ltd., Goldman Sachs Group Inc. and Morgan Stanley are leading the deal as joint sponsors.


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