A US$3.9bn top-up placement and convertible bond from Chinese smartphone maker Xiaomi last week added to Hong Kong's claim to be the fundraising platform of choice for China's technology sector.
The combo deal was Xiaomi’s first equity raising since its HK$42.6bn (US$5.5bn) Hong Kong IPO in July 2018, and included Hong Kong's biggest overnight primary follow-on, showing that the city is closing the gap with the far bigger US equity market.
Xiaomi's IPO was the first to take advantage of new rules introduced in April 2018 aimed at attracting innovative companies to the exchange, as its dual-class share structure was not previously allowed in the Hong Kong market.
It took a long time, however, for Xiaomi to return to the equity market, mainly because its shares struggled until recently to trade above the HK$17 IPO price. The stock only began to hit its stride this August and set a high of HK$28.40 on November 24 when the company reported a 19% surge in third-quarter net profit as its shipments jumped 45% year on year.
The shares closed at HK$26.15 on Tuesday before the deal launched, up 143% this year.
Xiaomi launched a top-up placement of 1bn shares, or about 4% of the enlarged share capital, in a price range of HK$23.70–$24.50. It also offered a seven-year put-five convertible bond to raise US$855m.
“Starting with Alibaba’s secondary listing in Hong Kong, the city has proven itself as a fundraising hub for US-listed tech companies seeking a home listing. The Xiaomi deal further showed a high-quality Hong Kong-listed tech company can also raise the kind of big money its US-listed peers have raised in the secondary market,” said a banker on the deal.
US-listed Chinese tech companies have raised billions of dollars from primary follow-ons this year, riding on a strong US stock market.
Last month e-commerce company Pinduoduo and online property service KE Holdings raised a whopping US$7.4bn in total from opportunistic equity offerings. Last week, electric vehicle maker Li Auto and online grocery and delivery outfit Dada Nexus raised US$1.36bn and US$450m respectively from primary share sales.
The Xiaomi deal drew upbeat demand as the strong third-quarter results indicated the company is on a high growth track. Bankers are now tipping Hong Kong-listed Chinese food delivery giant Meituan to follow suit given that its share price is up more than 170% this year.
Xiaomi raised HK$23.7bn from the top-up placement after pricing the shares at the bottom of the indicative range – at a discount of 9.4% to Tuesday’s close.
“There is a lot of money in the market looking for high-quality and liquid names such as Xiaomi. Investors were keen on the deal as they thought the discount was attractive,” said another banker on the deal.
The placement was well oversubscribed with support from regional long-only investors, existing shareholders and multi-strategy funds. There were more than 100 investors in the book with the top 10 getting more than 60% of the allocation.
Xiaomi shares fell 7.1% to HK$24.30 on Wednesday, holding firm above the placement price.
Xiaomi also priced the US$855m zero-coupon CB, which was issued at a price of 105.25, at aggressive terms. The CB was sold at a negative yield-to-put of –1.021% and a negative yield to maturity of –0.73%. The conversion premium was set at 55%, above the indicative range of 42.5%–52.5%.
“Xiaomi offers a rare chance for Asian investors to buy into an investment-grade tech equity-linked product,” said a third banker on the deal. The company is rated Baa2/BBB–/BBB and established its first credit benchmark earlier this year with a US$600m 10-year bond in April.
The CB was heavily oversubscribed with more than 200 investors participating. Demand came from all over the world and was split evenly between long-only and hedge funds. The top 10 investors received about 65% of the allocation.
Credit spread was assumed at 150bp, implied volatility at 37% and bond floor at 91.
The CB traded up to around 108 in the secondary market.
Xiaomi plans to use the proceeds to strengthen working capital for business expansion, investments to increase market share, "strategic ecosystem investments", and other general corporate purposes.
Credit Suisse, Goldman Sachs, JP Morgan and Morgan Stanley were joint bookrunners.