Xiaomi Silent On Valuation, CDRs Ahead Of Hong Kong IPO

Smartphone-maker Xiaomi Corp. is treading carefully ahead of its blockbuster initial public offering in Hong Kong next month, remaining mum on its expected valuation and stressing it will wait until after that listing before considering a sensitive mainland stock sales plan.

Lei Jun, the company’s charismatic founder and chief executive, seemed taken aback when asked several times at a company media event in the city on Saturday about the company’s future plan to issue Chinese depositary receipts (CDRs). Instead, Lei was keen to emphasize Xiaomi’s growing internet-related sales in addition to its well-established smartphone business.

Xiaomi had been expected to be the first Chinese tech titan to float CDRs on the mainland after regulators announced rules for issuing the new securities earlier this month. CDRs were designed to allow China’s foreign-listed tech firms, such as Alibaba Holdings Group Ltd. and Tencent Holdings Ltd., as well as Chinese tech companies that plan initial listings abroad, to also float their shares on the mainland and so give domestic investors a chance to own part of the high-flying companies.

But the company decided on Tuesday to postpone issuing CDRs until after its Hong Kong IPO early next month. The company is aiming to raise at least $4.7 billion at a corporate valuation of $53.9 billion. Those targets have been scaled back from the previous plan to raise $10 billion at a $100 billion valuation.

Zhou Shouzi, vice president and chief finance officer, told reporters at Saturday’s event that Xiaomi doesn’t plan to reapply for CDR issuance any time soon. A successful listing in Hong Kong first will ensure the “quality” of the company’s eventual CDR issuance, according to Zhou, adding that the CDR delay was not caused by a disagreement between the company and China Securities Regulatory Commission.

Zhou’s comments were echoed by Charles Li, chief executive of Hong Kong Exchanges and Clearing Ltd., who earlier said that Xiaomi may have been concerned that its securities would have been subject to too much volatility if they had started trading in Hong Kong and on the mainland at the same time.

The market valuation of Xiaomi has been a focal point of the upcoming Hong Kong IPO, with some investment banks valuing the company as high as $90 billion, or 27 to 34 times projected 2019 earnings. By comparison, Apple Inc. has a multiple of 14.5, leading some market analysts to argue that a $90 billion valuation is too high.

“Xiaomi has never said how much we are worth, it is all market speculation,” said Zhou.

Xiaomi’s multifaceted business model adds to the difficulty of valuing the company, analysts say.

In response, CEO Lei argued that Xiaomi is no longer merely a smartphone manufacturer but also an internet company with a business model mixing “hardware, internet and new retail”.

Lei said more than 20% of the firm’s 2017 sales came from offerings other than smartphones, such as internet-of-things products. Handset sales may account for only half of Xiaomi’s business in eight to 10 years, he added.

Contact reporter Mo Yelin (yelinmo@caixin.com)