Shares in Chinese smartphone giant Xiaomi Corp (小米) yesterday fell on their Hong Kong debut, but they managed to bounce back from an early plunge, following a long-awaited initial public offering (IPO) overshadowed by China-US trade tensions and falling global markets.
The company’s shares sank almost 6 percent to HK$16 at one point — from an IPO price of HK$17, which was already at the low end of its expected range — before clawing back to end the morning at HK$16.98.
Even before public trading started, confidence was low, with investors selling at a discount on the unofficial “gray market” last week, Bloomberg News reported.
Despite being one of the most anticipated Chinese technology IPOs this year, Xiaomi saw a disappointing valuation of US$54 billion, well below its ambitious US$100 billion target.
Founded in 2010 by entrepreneur Lei Jun (雷軍), Xiaomi has grown from a start-up in Zhongguancun — China’s “Silicon Valley” — to become the world’s fourth-biggest smartphone vendor at the end of last year, International Data Corp said.
Lei has said that Xiaomi is a “new species” of company, with what he describes as a “triathlon” business model combining hardware, Internet and e-commerce services. Its products range from smart home gadgets like air purifiers to non-tech items such as pillows and ballpoint pens.
A delay in Xiaomi’s plan to launch new so-called Chinese depositary receipts (CDRs) in Shanghai and doubts about the sustainability of its business model were also among reasons for the lower valuation, analysts said.
Chinese authorities devised the CDR program, under which homegrown companies listed abroad can simultaneously list at home, after watching technology heavyweights Alibaba Group Holding Ltd (阿里巴巴) and Baidu Inc (百度) launch on Wall Street.
The plan aims to help development of China’s still relatively immature and volatile share markets and allow domestic investors to invest in the country’s big tech champions.
Beijing-based Xiaomi is the first firm in Hong Kong to trade with the controversial dual-class structure since listing rules were overhauled to allow weighted voting rights for different sets of shareholders.
Analysts said Hong Kong’s technology listings have struggled in the past few months, deflating investor interest, while escalating trade tensions have made it a bad time to launch an IPO.
“Nothing can help because the sentiment is no good at the moment... Most of the IPOs listed this year were not that profitable,” said Dickie Wong (黃德几) of Kingston Securities (金利豐證券), adding that he does not see any “upsides” until the CDR listing, which would boost interest.
However, Mo Jia (賈沫) of research firm Canalys said the IPO was a “must-go for them even though the current situation is not positive,” as Xiaomi would need the cash for an ongoing global expansion as it looks to broaden its scope outside the saturated Chinese smartphone market.
There could be repercussions for Hong Kong’s IPO outlook, Jackson Wong (黃志陽) of Huarong International Securities Ltd (華融國際金融) said, adding that a tepid start for Xiaomi would suggest a weak appetite for new listings in the territory of Hong Kong.
“That would definitely make [other firms looking to list] look for other markets such as New York,” he added.
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