Smartphone giant Xiaomi has become the first company to apply to use Chinese Depository Receipts (CDR) to make its equity stakes available in mainland China.
On 11 June the China Securities Regulatory Commission (CSRC) made Xiaomi’s CDR application publicly available, which indicates that CITIC Securities will serve as sponsor and chief underwriter for their issuance.
CDR’s are a new form of financial instrument that permit Chinese investors to obtain equity stakes in companies listed abroad via domestic bourses.
Beijing hopes that the launch of the instruments will help Chinese tech giants listed in the US or Hong Kong to return to the A-share market, to the benefit of domestic capital markets and China’s own tech sector.
Rumours have recently swirled that Xiaomi would likely become the first company to apply for CDR issuance, in order to coincide with its USD$10 billion listing in Hong Kong.
Xiaomi satisfies key application requirements, which stipulates that companies must be in the tech sector or strategic emerging sectors, have a market valuation of no less than 200 billion yuan or operating revenue of at least 3 billion yuan and a market valuation of no less than 20 billion yuan for the past year.
Applicants are also required to be in continuous operation for the past three years, with no change in actual controller during this period.
XIaomi’s CDR prospectus submitted to CSRC indicate that the company saw operating revenues of 66.811 billion yuan in 2015, 68.434 billion yuan in 2016, 114.625 billion yuan last year, and 34.412 billion yuan in the first quarter of 2018.
Net profits attributable to common shareholders were 2.248 billion yuan in 2015, 233 million yuan in 2016, 3.945 billion yuan last year, and 1.038 billion yuan in the first quarter of 2018.
According to the prospectus 30% of funds raised with be used for the research and development of Xiaomi’s core products, while 30% will be used to strengthen Internet of Things and daily consumer goods, as well as mobile internet services.
The remaining 40% will be used for global expansion into overseas markets.
The prospectus further indicates that Xiaomi has reorganised its financial operations into Xiaomi Finance, which is a fully share owned subsidiary of Xiaomi, with plans to use a share incentive scheme to provide stock futures to senior executives and key personnel.
Should this plan proceed Xiaomi Finance will cease to be a fully owned subsidiary of the parent company.