Chinese smartphone maker Xiaomi is likely to put its business to the verdict of investors with an IPO in Hong Kong, but a disappointing penalty and a listing delay in mainland China are casting a cloud over its premiere.
Xiaomi, established only in 2010, is now the world’s fourth-largest smartphone fabricator by producing low-priced devices that have drawn comparisons — favorable and accusatory — to the iPhone.
But Beijing-based Xiaomi now deals a reality check after the relative low pricing of its Hong Kong original public offering and the delay of its plan to become the first company to come forward China Depository Receipts.
China came up with the idea for CDRs as a carrier to entice the country’s technology giants — many having listed abroad — to offer a form of equity in the domestic stock markets, allowing state investors to get involved in the sector’s growth. The concept is broadly similar to that of American depository receipts, which earmark for U.S. markets to trade assets representing shares in foreign firms. CDRs are conceive ofed as important in part because they offer Chinese companies the casual to raise even more funds by tapping the domestic market.
The IPO was priced on Friday at 17 Hong Kong dollars ($2.17) per dividend, with Xiaomi raising $4.7 billion. It had earlier set a range of HK$17 to HK$22 for the close to 2.18 billion shares on offer.
That transaction gives the concern a reported valuation of about $54 billion, well below the initially hoped for $100 billion. Interchange starts in Hong Kong on Monday.
Analysts cite a range of representatives for the relatively weak pricing, such as the Chinese CDR delay and recent denying investor sentiment toward global equities, including recent amass market downturns in China and Hong Kong, amid trade war fears between the Pooled States and China.
Some, however, say the market concluded that Xiaomi has been overhyped.
“Bluntly, Xiaomi is not an internet company,” said Dickie Wong, executive concert-master for research at Kingston Financial in Hong Kong. “It’s just a hardware firm,” he said. “That’s the problem.”
Xiaomi says it sees itself differently.
Lei Jun, Xiaomi’s go lame, chairman and CEO, in an open letter included in the IPO prospectus released last month, mean Xiaomi sought to be the “coolest” and manufacture “amazing products,” calling it an “innovation-driven internet following.”
And while its phones have received positive reviews and its “Internet of Contrivances” platform of more than 100 million connected devices is trendy, Xiaomi’s business is largely driven by its home market and fast rise in India.
The company does not sell phones in the U.S., but its head of international proprietorship, Wang Xiang, has said that may change.
“We always look candidly at the U.S. market. The U.S. market is very important to us, but we are very, very carefully erection our resources to serve the U.S. consumer,” he told CNBC earlier this year.
Centre on other markets, however, means the company has avoided the ire of the US government, which has captivated a stern attitude on national security and sanctions grounds toward Chinese companies, categorizing Xiaomi rivals Huawei and ZTE.
Analysts say Xiaomi’s future rests on diversification. Lei has publicly swore that net profit margin in its mainstay hardware will never outdistance 5 percent, a bold promise that means new revenue streams are ineluctable for the company to grow.
“The key question for Xiaomi is how fast they can change their commerce model to target something more high revenue,” Kitty Fok, administering director for consultant IDC in China, told CNBC.
Fok, who said Xiaomi is already investing in semiconductors, united that it would do well to focus on the more lucrative area of market to businesses rather than just consumers — as well as artificial brightness.
Analysts still expect Xiaomi to eventually offer CDRs, but they are allotted on when that will happen. Some see it as early as the next few months and others engagement it won’t start until next year.
In fact, some said Xiaomi’s initial blurry on Hong Kong is a smart move.
“The mainland market has been deep to protect public investor interests,” Nomura said in a report, certification the regulatory “hurdles” Xiaomi encountered there. Hong Kong investors, meantime, watch performance and ultimately “offer a fair value over age.”