Caixin
Jan 09, 2019 05:28 PM
BUSINESS & TECH

Xiaomi Plumbs New Lows as Early Investors Dump Shares

A Xiaomi store in Shenyang, Liaoning province on Dec. 2. Photo: IC
A Xiaomi store in Shenyang, Liaoning province on Dec. 2. Photo: IC

Shares of smartphone maker Xiaomi Corp. sank to all-time lows Wednesday on volume not seen since shortly after its blockbuster initial public offering (IPO) last year, as investors sold the stock following the end of a major lockup period.

The high volatility prompted the company to issue a statement saying its CEO and CFO wouldn’t sell their shares for at least another year in a show of confidence in Xiaomi’s future.

Xiaomi shares fell 6.9% in Hong Kong on Wednesday, adding to a 7.5% decline the previous day. Trading volume on those two days totaled more than 200 million shares, or well above the company’s average volume that seldom sees more than 50 million shares trade on a single day.

The sell-off came as a six-month lockup period expired following Xiaomi’s IPO that was the world’s second largest last year, raising $5.4 billion. More than 3 billion shares were unlocked, equal to about 19% of those outstanding, according to data compiled by Bloomberg.

Following a brief price spike after the IPO, Xiaomi’s shares have moved steadily downward from their listing price of HK$17 ($2.17). At their current level the shares have now lost about a third of their value, giving the company a market capitalization of about $34 billion — well below the $45 billion it was worth at the time of Xiaomi’s last major pre-IPO funding at the end of 2014.

Despite being profitable, Xiaomi has suffered from heavy reliance on smartphones at the ultra-competitive low end of the market. In a bid to shed that reliance, the company is preparing to parse itself into a number of brands targeting different market segments, starting with a spinoff later this week of its low-end Redmi brand that currently accounts for the big majority of its sales.

In a bid to stabilize the stock price, Xiaomi announced Wednesday that co-founder and CEO Lei Jun would hold on to most of the company stock he holds through two other entities for at least the next 365 days. Those two entities, Smart Mobile Holdings Ltd. and Smart Player Ltd., were set to hold a combined total of nearly 30% of Xiaomi’s shares after the IPO, according to the prospectus.

“For the purpose of expressing their confidence in the long term value of the company, (Lei Jun and the two companies he controls) undertook … on a voluntary basis that, for a further period of 365 days commencing from the date of this announcement, they shall not dispose of any shares of the company directly or indirectly beneficially owned by them,” the announcement said.

The statement added the pledge did not apply to up to 640 million Class B shares of the company controlled by Lei that can be donated to charities. It said company CFO Chew Shou Zi also agreed not to sell any of his company shares for the next 365 days.

Contact reporter Yang Ge (geyang@caixin.com)

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