Smartphone giant Xiaomi plans to use Chinese Depository Receipts (CDR’s) to raise nearly a third of its USD$10 billion IPO in mainland China according to sources speaking to Reuters.
Xiaomi is expected to raise $10 billion via its Hong Kong IPO in July after filing a prospectus last month. The IPO is set to be the biggest listing on global capital markets in four years.
Sources said to Reuters that up to 30% of the IPO will raise funds in mainland China by means of CDR’s – a new financial instrument that permits domestic Chinese investors to obtain equity stakes in enterprises listed abroad via the Shanghai or Shenzhen bourses.
According to the sources Xiaomi will price both its Hong Kong and mainland share offerings on the same day, with Citic Securities set to lead the CDR issue.
CLSA, Goldman Sachs and Morgan Stanley will serve as joint sponsors for the listing in Hong Kong.
The Reuters report follows a recent story from IPO Zao Zhidao citing sources form the China Securities Regulatory Commission (CSRC) who said that Xiaomi would become the first enterprise listed outside mainland China to enter the domestic A-share market via CDR’s.
Beijing hopes that the launch of CDR’s will enable Chinese tech giants that first listed abroad, such as Alibaba and Baidu, to return to domestic bourses and give a boost to China’s capital markets as well as its hi-tech sector.
Other firms that are expected to soon launch CDR’s issues include tech giants Alibaba Group, Baidu and JD.com.
According to analysts Xiaomi could benefit from CDR issuance because Chinese A-share valuations are typically higher than those for Hong Kong stocks.
Enabling mainland retail investors to directly acquire stakes in the company should thus help to drive up prices for the company’s IPO.
Xiaomi’s mainland prices will also receive a boost from the fact that there are barely any major internet companies on China’s A-share market at present.