(Reuters) — Xiaomi Corp’s shares fell as a lot as 6 % of their Hong Kong debut on issues over the Chinese smartphone maker’s valuation, in an ominous signal for its know-how sector friends who’ve lined up listings within the metropolis.
The share efficiency of Xiaomi is a key take a look at of investor sentiment for what is anticipated to be a packed preliminary public providing (IPO) calendar within the coming months. These embrace a $four billion deal from on-line meals delivery-to-ticketing companies platform Meituan Dianping and an as much as $10 billion IPO from China Tower, the world’s largest cell tower operator.
“Other IPO candidates will rush to Hong Kong to list before the market sentiment shifts. And they have to speed up the pace if they aim for a good valuation,” mentioned Hong Hao, chief strategist at brokerage BOCOM International.
“However, given the targeted high valuations of many new-economy IPO hopefuls and the number of IPOs going forward, it will be challenging for the market to digest all of them,” Hong mentioned.
Xiaomi priced its IPO at HK$17 per share, the underside of the vary it supplied, elevating $four.72 billion on the planet’s largest know-how float in 4 years.
Its shares touched a low of HK$16 in early commerce and later rallied to briefly contact its IPO value. The inventory was at HK$16.88 after the noon break, whereas the principle Hong Kong inventory market index was 1.7 % greater.
Xiaomi’s itemizing comes as traders fret over escalating commerce tensions between the United States and China which have shaken markets over the previous a number of weeks. The spat pushed Hong Kong’s benchmark index to a nine-month low final week.
Asked if the low pricing of Xiaomi and another know-how corporations will weigh on upcoming IPOs, Hong Kong inventory alternate CEO Charles Li mentioned on the Xiaomi itemizing ceremony: “We cannot put a brake. The market is always open. It’s open to everybody…If you don’t like the price, you can stay away.”
Xiaomi’s IPO valued the agency, which additionally makes internet-connected dwelling home equipment and devices, at about $54 billion, virtually half the $100 billion it had initially hoped for and beneath its more moderen goal of not less than $70 billion.
Xiaomi had been anticipated to lift as much as $10 billion, cut up between its Hong Kong and a mainland providing. But in a shock transfer final month, it postponed its mainland share providing.
The HK$17 value valued the corporate at 39.6 occasions 2018 earnings, whereas iPhone maker Apple is buying and selling at 16 occasions and Chinese social media and gaming large Tencent Holdings at 36.
“Trading below the issue price suggested that investors still felt the valuation of the stock was relatively high as compared with Tencent and Apple,” mentioned Linus Yip, chief strategist at First Shanghai Securities.
Potential traders additionally struggled to view the corporate because the web play it considers itself to be, relatively than as a smartphone maker – the lower-margin enterprise that at present generates most of its earnings, sources mentioned.
“We are an internet firm. From day one, we’ve set up a dual-class share structure. Without the innovation of Hong Kong’s capital markets, we wouldn’t get a chance to go public in Hong Kong,” Xiaomi’s founder and chief govt Lei Jun informed the itemizing ceremony on the Hong Kong inventory alternate.
Xiaomi bought 2.18 billion shares, making the IPO the biggest within the know-how sector since Alibaba Group raised $25 billion in New York in 2014.
The float provides to Hong Kong’s $7 billion value of recent listings this 12 months. It can also be the primary underneath town’s new guidelines allowing dual-class shares, widespread amongst U.S. tech corporations, in an try to draw tech sector floats.
Xiaomi focuses on low-priced, high-performance smartphones and touts an modern enterprise mannequin that options on-line companies, a spread of client electronics merchandise constructed by companion corporations, and a retail technique that features a community of bodily shops.
It is now the most important smartphone vendor in India and is pushing into European markets together with Spain and Russia, although it has misplaced share in China not too long ago to lower-cost rivals.
(Reporting by Julie Zhu; Additional reporting by Donny Kwok and Sijia Jiang; Writing by Sumeet Chatterjee; Editing by Muralikumar Anantharaman)