Why Xiaomi priced its shares low despite huge buyer interest

Xiaomi priced its shares at lower end of HKD 17 each. The pricing values Xiaomi at about USD 54 billion, roughly half of the Xiaomi's initial expectation.

By Mudit Kapoor  
Friday, June 29, 2018

Xiaomi recently went public in Hong Kong raising USD 4.72 billion. Almost 2.2 billion shares were offered for sale between June 25 and June 28 with the price band of HKD17 - HKD22 raising total expected amount of USD 4.7 to USD 6.1 billion. Trading on the stock will commence from July 9, 2018. Goldman Sachs Group Inc., Morgan Stanley and CLSA Ltd. led Xiaomi's IPO as joint sponsors.

Interestingly, Xiaomi priced its shares at lower end of HKD 17 each. The pricing values Xiaomi at about USD 54 billion, roughly half of the Xiaomi's initial expectation.The biggest Hong Kong IPO in nearly two years attracted orders from billionaire George Soros and Chinese investment firm Hillhouse Capital, as per a Bloomberg report.

This has been the world's biggest tech float in the last four years since Alibaba Group Holding Ltd raised USD 25 billion in New York in 2014.

Lets analyse some of the reasons which lead Xiaomi to price its IPO at the lower price range of HKD 17.

Investors are wary about the trade tariff war between the US and China because the tariff implosion would result in lesser trading between the two economic giants, adversely impacting businesses.This year Xiaomi founder Lei Jun pledged to keep the net profit margin below 5 per cent for its hardware products. This decision of Xiaomi would have to be matched by massive investments into the business to increase sales volume to cover the loss arisen due to decreased profitability margin.

Xiaomi's initial plan was to raise around $10 billion through two sources: IPO in Hong Kong and simultaneous CDR issuance in China. But due to undisclosed reasons Xiaomi opted for going public in Hong Kong first, postponing the Chinese issuance of CDR to an undecided date. This took the wind away from Xiaomi's maiden sail.

"Xiaomi's exceedingly thin margins from hardware significantly drags down its valuation for potential investors," Bloomberg quoted James Yan, an analyst with Counterpoint Research, in Beijing. "I expect it to invest more in the smartphone unit, especially on international expansion. It also needs cash to beef up its ecosystem in markets like India. All those fronts are extremely capital-intensive."

Related Stories

Sensex, Nifty close higher for 2nd session on strong fund inflows, firm rupee
Sensex, Nifty close higher for 2nd session on strong fund inflows, firm rupee
Jet Airways stock closes 8.07% higher amid reports of Tata Sons board meet to discuss takeover of ailing carrier
Jet Airways stock closes 8.07% higher amid reports of Tata Sons board meet to discuss takeover of ailing carrier
Foreign investors log highest ever outflows from Indian market in October
Foreign investors log highest ever outflows from Indian market in October

Latest Stories

Trai seeks public view to make paper telephone bill optional
Trai seeks public view to make paper telephone bill optional
New RBI window may not increase credit to NBFCs: Report
New RBI window may not increase credit to NBFCs: Report
Mercedes-Benz launches new CLS; price starts at Rs 84.7 lakh
Mercedes-Benz launches new CLS; price starts at Rs 84.7 lakh
SPONSORED