Xiaomi’s IPO: First Foreign Company to Issue CDRs in Mainland China

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Xiaomi Corporation is going to be the first foreign company to issue Chinese Depositary Receipts (CDRs) in mainland China, as revealed in its prospectus released by the China Securities Regulatory Commission on Monday. The initial public offering on the Shanghai Stock Exchange is likely to occur around the same time as Xiaomi’s IPO in Hong Kong, the prospectus for which was submitted on May 3, 2018.

Previously, it would have been impossible for companies registered outside of China, like Xiaomi in the Cayman Islands, to list on China’s A-shares market. CDR, a depository receipt which allows Chinese investors to hold shares in foreign companies, was the solution to bring these highly valuable companies back.

Chinese Depositary Receipts (CDRs)
Chinese Depositary Receipts (CDRs)

Only a few companies meet the criteria for issuing CDRs in China, as its stringent requirements include: the company must be in a high-tech industry deemed strategically important by the Chinese government, and has a market value of no less than 200 billion yuan ($31.26 billion) or an operating income of more than 3 billion yuan at a valuation of over 20 billion.

According to Xiaomi’s prospectus, 30% of the money raised in the A-share market will be used for the R&D of independent products, 30% for expanding and strengthening the ecological chain of major industries such as IoT, consumer goods and Internet services (including AI), while the remaining 40% will be used for global expansion. The composition is only slightly different from how Xiaomi plans to spend the money raised in Hong Kong.

usage of the money raised in the A-share market
usage of the money raised in the A-share market

The ownership percentages prior to filing are as follows: Lei Jun, the CEO and co-founder of Xiaomi owns 31.41%, co-founder and president Lin Bin holds 13.33%, co-founder and brand strategy officer Li Wanqiang holds 3.24%, Apoletto Managers Limited holds a total of 7.01%, Morningside Venture Capital holds 17.19%, and other shareholders hold a total of 31.05%.

The filing also revealed the company’s Q1 revenue hit the record of 34.4 billion yuan (US$5.4 billion). The company has shipped 28 million smartphones during the first quarter, up 87.8% year-on-year. CITIC Securities Co., Ltd. will be the sponsor and lead underwriter for this initial public offering.

Mi finance
Mi finance

According to the prospectus, Xiaomi also intends to spin off Xiaomi Finance as an independent entity through the use of equity incentives. At present, Xiaomi Corporation’s financial-related businesses such as supply chain financing, payment and internet insurance have been restructured into Xiaomi Finance, a wholly-owned subsidiary of the corporation.

As of March 2018, MIUI, Xiaomi’ customized Android ROM, had more than 190 million MAU with an average usage of up to 4.5 hours per user per day. At present, Xiaomi’s mobile phones have entered 74 countries and regions, taking the 5th place in global market share. Xiaomi also recently released its flagship phone Mi 8 and opened the world’s largest Mi home experience store in Nanjing.

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