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Founded in 2010, Xiaomi has since grown to become the fourth largest smartphone maker in the world by charming its customers (which it likes to call ‘fans’) with quality products and services at lower prices than the competition.
Although the Chinese company has built a name for itself as a low-cost smartphone maker, its ambitions go far beyond selling handsets. Xiaomi has unleashed a swathe of other connected products over the years such as smart speakers, cameras and a TV – all of which are powered using the same operating system as its smartphones, and are marketed under the Mi brand.
The story of Xiaomi so far…
2012: Xiaomi annual sales hit over $1 billion, just two years after being founded
2014: becomes the biggest smartphone maker in China based on unit shipments, three years after launching its first model, with annual sales of over $10 billion
2015: Monthly Active Users (MAU) of MIUI, its proprietary Android-based operating system, climbs to over 100 million
2017: declares it has built the ‘world’s largest consumer Internet-of-Things (IoT) platform’, based on the amount of connected devices (excluding its smartphones and laptops)
2018: makes first-of-a-kind listing to join the Hong Kong Stock Exchange
As investors continue to debate Xiaomi’s valuation, the company is under pressure to justify its worth and get its strategy across to the market. So, what is Xiaomi’s ambition and how does it plan to achieve it?
Xiaomi’s IPO plans prove overly ambitious
Markets were paying attention to Xiaomi as it prepared to start its life as a public company. Investors had been peddled the message that the firm was looking to join the Hong Kong stock exchange, boasting a valuation of around $100 billion in what was expected to be the biggest global offering since fellow Chinese giant Alibaba Group listed in New York in 2014.
Xiaomi had planned to raise $10 billion to attain that valuation, with about half coming from what would have been the first time Chinese Depositary Receipts (CDRs) had been issued. But after suddenly abandoning that plan and pricing its initial public offering (IPO) at the lower end of its guided range at HKD17 a share, Xiaomi’s listing ended up being a disappointment: raising just $4.7 billion to carry a valuation of about $54 billion.
Xiaomi’s decision to shelve plan to issue CDRs knocks valuation
The CDRs were to be the first ever to be issued as China is looking to entice its tech firms that have opted to list abroad, mostly in New York, to list domestically. Acting like American Depositary Receipts (ADRs), CDRs allow Chinese firms to have a secondary listing in China. While Xiaomi put its plans to issue CDRs on the backburner without reason, it has been reported that the Beijing-based company believes the listing rules prove too restrictive on the tech companies that the CDRs have been designed for.
In addition, Xiaomi was the first company to list in Hong Kong under new rules that were introduced, allowing firms to have dual-class share structures. This meant that companies can have different sets of shares that carry different voting powers, ultimately allowing founders that have kept (and want to maintain) their deep roots in their business to take it public. In Xiaomi’s case, this meant its string of founders could keep control of the business, with chief executive and chairman Lei Jun holding close to 55% of the voting rights but just 29% of Xiaomi’s issued share capital following the IPO.
Although Xiaomi’s plans to issue CDRs didn’t materialise, the company was still expecting investors in China to invest through Stock Connect, a platform that links trading bourses between China’s equity markets in Shanghai and Shenzhen to those in Hong Kong. But soon after Xiaomi’s IPO it was announced that China was to exclude companies with dual-class share structures from Stock Connect, cutting them off from Chinese investment. Bearing in mind that Xiaomi is presently the only company to have listed under the new dual-class share rules, the decision was a direct blow to Xiaomi’s new life as a public company.
China argued that investors were not familiar with dual-class share structures, so it was protecting them from putting their money in something they did not understand. Others argued it was China’s attempt to damage Hong Kong’s reputation as the financial centre of Asia, or to stop cash from flowing out of China amid sharp sell-offs as the trade war between the US and China ramps-up.
However, it has since been revealed that China and Hong Kong have agreed to find a way to allow companies with dual-class share structures (including Xiaomi) to attract investors on the mainland through Stock Connect – although they are to be phased in to ensure there is time for investors to understand that their voting rights will not directly correlate to their shareholding. Interestingly, some have argued that the fact investors in mainland China will be able to invest in Xiaomi through Stock Connect means the need to issue CDRs would be null and void, as the primary purpose of the CDRs was to gain exposure to investors on the mainland.
Xiaomi shares start to find ground after a shaky start
After closing below its IPO price on what ended up being a lacklustre first day of trading on 9 July, Xiaomi shares started to rise the following day. After climbing over 26% in its first week of trading to hit a high of HKD22, Xiaomi shares have since dropped off but have managed to remain consistently above the IPO price.