Tue, May 01, 2018 - Page 10 News List

Xiaomi’s US$10bn IPO risks cash crunch in HK

Bloomberg

Hosting what is shaping up to be the world’s biggest initial public offering (IPO) this year might be a double-edged sword for Hong Kong.

Chinese smartphone maker Xiaomi Corp (小米) is preparing a share sale that would raise at least US$10 billion, people familiar with the matter said.

The territory’s red-hot IPO market usually sees offerings oversubscribed — sometimes by hundreds of times — as investors borrow heavily to place orders.

For clues on how this might play out, consider that China Literature Ltd’s (閱文集團) US$1.1 billion IPO last year locked up one-third of Hong Kong’s monetary base, the South China Morning Post reported at the time.

When Ping An Good Doctor (平安好醫生) last week started taking orders from retail investors for its shares, the key interbank interest rate (HIBOR) jumped by the most in nearly a decade.

A higher rate affects the cost of everything from housing mortgages to corporate loans; and if everyone is using their margin loans to subscribe for an IPO, that can mean less money sloshing around in the territory’s US$5.6 trillion equity market.

“We could expect a very notable increase in HIBOR if an IPO is very oversubscribed,” said Ronald Man, a strategist at Bank of America Merrill Lynch in Hong Kong.

Hong Kong interbank rates are already climbing after years at ultra-low levels as the territory’s monetary authority buys local dollars to defend a currency peg, thereby sucking up liquidity.

Beijing-based Xiaomi declined to comment on the IPO, which could be the largest worldwide since Chinese e-commerce giant Alibaba Group Holding Ltd (阿里巴巴) raised US$25 billion in its 2014 debut in New York.

Xiaomi might submit its IPO application this week and might list as early as the end of June, the Hong Kong Economic Journal reported, citing unidentified sources.

Demand is likely to be strong for Xiaomi’s offer.

The world’s fifth-largest smartphone vendor has hinted at strong profitability in its other services, which range from video streaming to online financing.

Xiaomi also makes money on advertising via its own apps and by providing paid subscriptions for premium entertainment content such as Web videos and books.

On the upside, a spike in interbank rates might give the Hong Kong dollar a brief boost.

The territory’s currency tends to strengthen up to two weeks before big listings as liquidity tightens amid subscriptions and funds get locked up, Goldman Sachs Group Inc said.

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