Smartphone maker Xiaomi's weak Hong Kong debut casts shadow on tech listings

Nichole VegaJul 12, 2018

Xiaomi's IPO was hailed as the most important Chinese technology debut in years, attracting A-list investors such as George Soros and fellow billionaires Li Ka-shing, Jack Ma and Pony Ma.

Despite Xiaomi's challenging debut, Reuters notes that Hang Seng - the Hong Kong stock market index - was 1.7 percent higher.

Chinese smartphone maker Xiaomi saw its share price fall below the offer price on its first full day as a public company. This is lower than the HK $17 value, at which the public offer was priced before the listing, indicating a lackluster response to the stock. Apple is trading at 16 times earnings and Chinese social media giant Tencent is trading at 36 times.

Xiaomi's listing comes as investors fret over escalating trade tensions between the United States and China that have shaken markets over the past several weeks.

Xiaomi founder, Chairman and CEO Lei Jun (2nd R) attends the listing of the company at the Hong Kong Exchanges in Hong Kong, China July 9, 2018.

By contrast, China Literature Ltd, the e-book arm of Tencent Holdings, late past year raised $1.1 billion in its Hong Kong IPO amid heavy demand, with the retail portion being 625 times oversubscribed. The Chinese smartphone maker opened for a trade down more than 2 percent on Monday.

Lei Jun also said, "Without the innovation of the Hong Kong capital markets, it would be hard for us to have a chance to list publicly in Hong Kong".

Selling phones into overseas developed markets might be a more realistic goal, given Xiaomi's growing credibility with affordable but reliable devices, than building a full-fledged internet content and services wing.

The company is the first in Hong Kong to sell shares with a dual-class structure since the city changed its rules to allow founders to keep outsized voting rights, although that means the stock won't be included in MSCI's global benchmarks.

Xiaomi aimed to be worth $100 billion this year, although now it is worth in the vicinity of $53 billion.

One of the tech world's most hotly anticipated stock market listings made a lacklustre start to trading amid concerns of a trade war and the valuation of the company. Goldman Sachs Group Inc., Morgan Stanley and CLSA Ltd. are leading Xiaomi's IPO as joint sponsors.

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