Smartphone maker Xiaomi applies for massive Hong Kong IPO

Xiaomi, the upstart smartphone company founded in Beijing in 2010, has filed an application for an initial public offering (IPO) to the Hong Kong Stock Exchange.

• The word xiaomi (小米 xiǎomǐ) means “millet,” but the phone brand is sometimes translated as “little rice,” which is the literal meaning of the two characters.
• Xiaomi is the world’s fourth most popular smartphone brand. Samsung, Apple, and Huawei lead the rankings, with Oppo, another Chinese brand, in fifth place, according to a recent report from market research firm IDC.
• Xiaomi’s IPO is expected to raise at least $10 billion, and could value the company at $100 billion, according to “people with knowledge of the matter” cited by Bloomberg. But Reuters reports that “two separate people said the company’s valuation would likely be lowered to a bit above $70 billion.”
• “The first detailed look at Xiaomi’s financial health ahead of the IPO” is in the filing, says Reuters. Revenue was 114.62 billion yuan ($18 billion) in 2017, up 67.5 percent against 2016. Xiaomi makes only “razor-thin margins” on selling phones but “large gross margins — 60 percent last year — from internet services, including gaming and advertising linked to its homegrown user interface, MIUI, which had 190 million monthly active users as of March 2018.”

…And the same little rice stayed home

Hong Kong recently changed its rules for public companies to allow dual-class shares, which tech companies like because they allow founders to retain outsize decision-making power even as they dilute their ownership.

• Many Chinese tech companies previously chose to list in New York or on Nasdaq because they wanted dual-class shares. That incentive is now gone.
• Xiaomi will be the first big Chinese tech company to list in Hong Kong under the new dual-class rules. The New York Times expects (paywall) that “a spate of Chinese companies” will IPO in Hong Kong over the next year, with the new rules cited as a major factor. The article suggests that Meituan-Dianping, Didi Chuxing, and Alibaba’s Ant Financial are all considering IPOs in Hong Kong in the near future.
• “If many of them end up listing in Hong Kong,” says the Times, “then China will have accomplished a major goal: keeping its hugely successful tech boom at home.”