June 15, 2018 / 6:31 AM / 3 months ago

Breakingviews - Xiaomi IPO escalates China’s battle of the bourses

HONG KONG (Reuters Breakingviews) - Xiaomi’s initial public offering escalates the battle of the bourses. The smartphone-maker originally filed to list in Hong Kong. On Thursday, the Beijing-based company said it will sell at least half of its expected $10 billion initial public offering across the border in Shanghai. This is a blow to the former British colony which only recently changed its rules to woo more tech listings.

A guest stands in front of a display showing "Mi fan" during a product launch by Xiaomi in Shenzhen, China May 31, 2018. REUTERS/Bobby Yip

Securing the debut of Xiaomi, which has a mooted valuation of $75 billion, was a huge win for the city. After losing several high-profile tech listings to New York, including e-commerce titan Alibaba’s $25 billion flotation in 2014, Hong Kong’s stock exchange operator in April reversed its ban on super-voting stock. Within days, Beijing-based Xiaomi filed to go public in the city, in what is expected to be the world’s largest IPO in four years.

Yet Shanghai will now take a big slice of Hong Kong’s hoped-for listing bonanza. Xiaomi will simultaneously sell Chinese depositary receipts (CDRs) to mainland investors. The local regulator last week outlined the new rules for foreign-listed outfits to sell stock at home. Xiaomi’s CDRs, which will also be the first to be issued in China, will make up at least half of the total IPO, or at least $5 billion, according to Thomson Reuters’ IFR.

It also suggests Hong Kong will have to share a lot of this future business with the People’s Republic. For years, most of the country’s tech champions went to New York which has long permitted dual class shares, while a handful chose Hong Kong. The latter had until two months ago stuck to a one-share one-vote rule but it at least allowed easier access to international investors.  

    Now there are plenty of reasons for tech titans to sell shares on the mainland. Frothier valuations are the most obvious. The benchmark CSI Shanghai-Shenzhen Index trades at some 23 times price to earnings, versus the 11 times on Hong Kong’s Hang Seng Index. It is also good politics to keep bureaucrats in Beijing happy. 

The sudden fight between neighbours to lure these companies to list in Greater China makes it look like Hong Kong was late to the party.

Breakingviews

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