China's Xiaomi files for mega Hong Kong tech IPO, lifts lid on financials

China’s Xiaomi files for mega Hong Kong tech IPO, lifts lid on financials

BEIJING/HONG KONG (Reuters) – Smartphone and linked gadget maker Xiaomi [IPO-XMGP.HK] filed for a Hong Kong preliminary public providing on Thursday that would elevate $10 billion and grow to be the most important itemizing by a Chinese expertise agency in virtually 4 years.

FILE PHOTO: The emblem of Xiaomi is seen inside the corporate’s workplace in Bengaluru, India January 18, 2018. Picture taken January 18, 2018. REUTERS/Abhishek N. Chinnappa/File photograph

Xiaomi’s IPO, which will likely be one of many first in Hong Kong below new guidelines to draw tech agency listings, is a serious win for the bourse as competitors heats up between Hong Kong, New York and the Chinese mainland.

The itemizing is predicted to lift about $10 billion through the general public providing, giving Beijing-based Xiaomi a market worth of between $80 billion and $100 billion, folks accustomed to the plans instructed Reuters.

Those targets, if achieved, will make it the largest Chinese tech IPO since Chinese web large Alibaba Group Holding Ltd (BABA.N) raised $21.eight billion in 2014.

Xiaomi’s prospectus gave traders the primary detailed have a look at its monetary well being forward of the much-hyped IPO, which could possibly be launched as quickly as end-June, in keeping with the folks near the method who requested anonymity as the small print weren’t but public.

The numbers underscore how Xiaomi has remained resilient at the same time as the worldwide smartphone market has slowed, helped partially by a push abroad into markets like India.

The firm stated its income was 114.62 billion yuan ($18 billion) in 2017, up 67.5 p.c towards 2016. Operating revenue for 2017 was 12.22 billion yuan, up from three.79 billion yuan a 12 months in the past.

It made a web lack of 43.89 billion yuan versus a revenue of 491.6 million yuan in 2016, although this was impacted by the honest worth modifications of convertible redeemable desire shares.

A person walks previous a Xiaomi retailer in Shenyang, Liaoning province, China April 7, 2018. Picture taken April 7, 2018. REUTERS/Stringer

Alongside smartphones, Xiaomi makes dozens of internet-connected residence home equipment and devices, together with scooters, air purifiers and rice cookers, though it derives most of its income from web companies.

Its comparatively low-cost handsets pose a rising problem to market leaders Samsung Electronics Co Ltd (005930.KS) and Apple Inc (AAPL.O).

Xiaomi doubled its shipments in 2017 to grow to be the world’s fourth-largest smartphone maker, in keeping with Counterpoint Research, defying a world slowdown in smartphone gross sales.

It can be making an enormous push outdoors China’s borders, with 28 p.c of its gross sales derived from abroad markets final 12 months, up from 6.1 p.c in 2015.

Yet margins on its smartphones are razor-thin. Xiaomi posted a gross revenue margin of simply eight.eight p.c for its smartphone enterprise in 2017 in comparison with 60 p.c for its web companies enterprise.

According to some analyst estimates, Apple’s flagship iPhone X and iPhone eight have gross margins of round 60 p.c.

The firm makes the lion’s share of its revenue – 60 p.c – from web companies, together with gaming and promoting linked to its homegrown consumer interface, MIUI, which had 190 million month-to-month lively customers as of March 2018.

DUAL-CLASS SHARES

Xiaomi’s itemizing plans come as the corporate and its traders look to capitalize on a bull run for the Hong Kong market, which has seen the benchmark Hang Seng Index rise about 27 p.c over the previous 12 months.

Armed with the brand new guidelines permitting the itemizing of firms with dual-class constructions, Hong Kong is eyeing a number of tech listings which might be anticipated within the coming two years from Chinese companies with a mixed market cap of $500 billion.

Xiaomi stated in its IPO software the corporate would have a weighted voting rights (WVR) construction, or dual-class shares. The WVR give higher energy to founding shareholders even with minority shareholding.

The construction would permit the corporate to profit from the “continuing vision and leadership” of the dual-class share beneficiaries, who would management the corporate for its “long-term prospects and strategy”, it stated.

Dual-class shares have been a contentious subject in Hong Kong because the metropolis’s strict adherence to a one-share-one-vote precept price it the float of Alibaba, which as a substitute listed in New York.

Xiaomi can be more likely to be among the many first Chinese tech companies in search of a secondary itemizing in its residence market, utilizing the deliberate China depositary receipts route, two folks with data of the matter stated.

CLSA, Morgan Stanley and Goldman Sachs Group Inc are sponsoring Xiaomi’s IPO.

($1 = 6.3610 Chinese yuan renminbi)

Reporting by Cate Cadell in Beijing, Julie Zhu in Hong Kong and Rushil Dutta in Bengaluru; Writing by Sumeet Chatterjee; Editing Stephen Coates

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