China’s Xiaomi targets Europe as it kicks off US$6.1b IPO

(ChannelNewsAsia)—  Chinese smartphone maker Xiaomi will aggressively target European markets, using part of the proceeds from its initial public offering worth US$6.1 billion in Hong Kong, the company’s co-founder said Saturday.

The company is offering US$2.18 billion shares at HK$17 to HK$22 apiece, in a bid to raise US$6.1 billion, far less than the US$10 billion originally expected, as an escalating trade war between China and the US dampens investor sentiment.

But at a press conference in Hong Kong on Saturday, the company’s co-founders were bullish about its prospects, signalling plans for international expansion in Europe and Southeast Asia.

“Someone asked me if Xiaomi (will) only expand in developing countries? Last year we started to enter the European market and we realised we have a lot of ‘Mi fans’ in Europe,” said Lei Jun, Xiaomi’s co-founder and CEO .

The company will invest around HK$8.3 billion from its IPO proceeds towards boosting its presence in overseas markets including Spain, Russia and Indonesia.

The firm, which mainly sells cheap but high-quality smartphones in China, has been looking to push into Europe – recently opening its first flagship store in Paris – as the home market reaches saturation point.

“We are planning for the US market and will find a proper timing to enter it,” Wang Chuan, co-founder and senior vice president of Xiaomi, said on Saturday.

“Xiaomi is very optimistic about the development of China-US trade, as every economic entity is relying on each other,” Wang added.

Founded in 2010 by entrepreneur Lei, Beijing-based Xiaomi has grown from a start-up in Zhongguancun – China’s “Silicon Valley” – to the world’s fourth biggest smartphone vendor at the end of last year according to International Data Corp (IDC).

The company shipped 28 million smartphones worldwide from January to March, an 88 per cent surge year-on-year.

Xiaomi is now valued at about US$53.9 to US $69.8 billion, according to Bloomberg, which said the IPO looks set to be the world’s biggest in two years.

Xiaomi had hoped to be the first company to list shares in Hong Kong at the same time as launching new Chinese Depository Receipts (CDRs) in Shanghai under new rules announced in April by mainland authorities to open up markets in the world’s number two economy.

But on Tuesday Xiaomi put off its decision on listing the CDRs until it completes its July 9 listing in Hong Kong, with its management team telling reporters on Saturday that they have no timetable on launching the CDRs.

This delay, as well as differing market views about Xiaomi’s business model, contributed to the lower valuation.

Lei said Saturday that Xiaomi was a “new species” of company, with a unique “triathlon” business model combining hardware, internet and e-commerce services, even though 70 per cent of its revenues come from selling smartphones.

“I agree the smartphone market in the next 10 years will grow slowly. But still, it is a giant market,” Lei said.

According to its IPO prospectus, Xiaomi will use another 30 per cent of the funds raised towards expanding its home gadgets business and boosting mobile Internet services for its 190 million monthly active users.

SHARE-BASED CORPORATE BONUS

Xiaomi, which also makes Internet-connected devices, awarded its chief executive and co-founder Lei Jun about US$1.5 billion worth of shares for his contribution to the company, it said in an updated regulatory filing this week, in one of the largest one-off share-based corporate bonuses in years.

The US$1.5 billion stock, which has been awarded to Lei’s holding entity – Smart Mobile Holdings Ltd – was recorded by Xiaomi as share-based compensation expenses on April 2, one month before it filed for its blockbuster Hong Kong IPO.

Xiaomi is the latest high-profile company to lavish its senior executives with large stock awards ahead of a stock market flotation in recent years.

Its co-founder and president, Lin Bin, defended the board’s decision on the stock compensation at the news conference.

“Many new-economy companies have compensated their chairmen or CEOs with stocks ahead of the IPOs. Xiaomi isn’t the first and won’t be the last to do so,” he said.

Lin added Xiaomi’s board unanimously agreed on the stock award to Lei, who “completely knew nothing about it”.

Chinese e-commerce powerhouse JD.com awarded CEO Richard Liu a stocks worth nearly $900 million at the company’s IPO price, ahead of its New York listing in 2014.

 

Credit:: ChannelNewsAsia

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