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Xiaomi IPO draws bids at 9.4% discount in grey market

Jul 05 2018 13:31
Sofia Horta e Costa and William Canny, Bloomberg

Xiaomi’s debut is off to a bad start even before its shares officially start trading in Hong Kong on Monday.

Some institutional investors saw bids as low as HK$15.40 on Thursday with no offers in grey-market trading, according to three people familiar with the matter. That’s 9.4% below the issue price.

Others said the level was at HK$16.15 - a drop of 5% - though there were no firm offers either, according to Andrew Jackson, head of Japanese equities at Soochow CSSD Capital Markets in Singapore.

Xiaomi priced its IPO at the bottom end of a range, cutting its valuation to about $54bn, roughly half of the smartphone maker’s initial goal. The company also scrapped a plan to sell shares on the mainland after failing to satisfy regulators.

The debut comes as investors abandon Hong Kong equities amid concern over a US-China trade war.

Traders will be able to bet on further declines by shorting the stock on its first day of trading, according to the Hong Kong exchange operator.

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.

After a sizzling 2017, Hong Kong’s tech listings have started to struggle. Ping An Healthcare & Technology’s May debut flopped after the retail tranche was 600 times oversubscribed.

Razer, a maker of gaming laptops and accessories, and online car-financing provider Yixin trade more than 50% below their November issue price.

Retail investors failed to show much interest in Xiaomi despite the hype, but those who bought into the IPO may be able to flip their shares from tomorrow. Phillip Securities Group typically begins operating a grey market one trading day before the debut.

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