BEIJING/HONG KONG: Smartphone and connected device maker Xiaomi filed
for a Hong Kong initial public offering on Thursday that could raise $10
billion and become the largest listing by a Chinese technology firm in
almost four years.
Xiaomi's IPO, which will be one of the first
in Hong Kong under new rules to attract tech firm listings, is a major
win for the bourse as competition heats up between Hong Kong, New York
and the Chinese mainland.
The listing is expected to raise about
$10 billion via the public offering, giving Beijing-based Xiaomi a
market value of between $80 billion and $100 billion, people familiar
with the plans told Reuters.
Those targets, if achieved, will
make it the biggest Chinese tech IPO since Chinese internet giant
Alibaba Group Holding Ltd raised $21.8 billion in 2014.
Xiaomi's
prospectus gave investors the first detailed look at its financial
health ahead of the much-hyped IPO, which could be launched as soon as
end-June, according to the people close to the process who requested
anonymity as the details were not yet public.
The numbers
underscore how Xiaomi has remained resilient even as the global
smartphone market has slowed, helped in part by a push overseas into
markets like India.
The company said its revenue was 114.62
billion yuan ($18 billion) in 2017, up 67.5 percent against 2016.
Operating profit for 2017 was 12.22 billion yuan, up from 3.79 billion
yuan a year ago.
It made a net loss of 43.89 billion yuan versus
a profit of 491.6 million yuan in 2016, though this was impacted by the
fair value changes of convertible redeemable preference shares.
Alongside smartphones, Xiaomi makes dozens of internet-connected home
appliances and gadgets, including scooters, air purifiers and rice
cookers, although it derives most of its profits from internet services.
Its relatively cheap handsets pose a rising challenge to market leaders Samsung Electronics Co Ltd and Apple Inc .
Xiaomi doubled its shipments in 2017 to become the world's
fourth-largest smartphone maker, according to Counterpoint Research,
defying a global slowdown in smartphone sales.
It is also making
a big push outside China's borders, with 28 percent of its sales
derived from overseas markets last year, up from 6.1 percent in 2015.
Yet margins on its smartphones are razor-thin. Xiaomi posted a gross
profit margin of just 8.8 percent for its smartphone business in 2017
compared to 60 percent for its internet services business.
According to some analyst estimates, Apple's flagship iPhone X and iPhone 8 have gross margins of around 60 percent.
Xiaomi's internet services include gaming and advertising linked to its
homegrown user interface, MIUI, which had 190 million monthly active
users as of March 2018.
DUAL-CLASS SHARES
Xiaomi's listing plans come as the company and its investors look to
capitalise on a bull run for the Hong Kong market, which has seen the
benchmark Hang Seng Index rise about 27 percent over the past year.
Armed with the new rules allowing the listing of companies with
dual-class structures, Hong Kong is eyeing several tech listings that
are expected in the coming two years from Chinese firms with a combined
market cap of $500 billion.
Xiaomi said in its IPO application
the company would have a weighted voting rights (WVR) structure, or
dual-class shares. The WVR give greater power to founding shareholders
even with minority shareholding.
The structure would allow the company to benefit from the "continuing
vision and leadership" of the dual-class share beneficiaries, who would
control the company for its "long-term prospects and strategy", it said.
Dual-class shares have been a contentious topic in Hong Kong since the
city's strict adherence to a one-share-one-vote principle cost it the
float of Alibaba, which instead listed in New York.
Xiaomi is also likely to be among the first Chinese tech firms seeking a
secondary listing in its home market, using the planned China
depositary receipts route, two people with knowledge of the matter said.
CLSA, Morgan Stanley and Goldman Sachs Group Inc are sponsoring Xiaomi's IPO.
