Hong Kong Equity Issue: Xiaomi’s US$3.9bn follow-on and convertible bond

IFR Asia Awards 2020
3 min read
Fiona Lau

Closing the gap

A record-setting US$3.9bn top-up placement and convertible bond from Chinese smartphone maker Xiaomi helped Hong Kong close the gap with the larger US equity market as the fundraising venue of choice for China’s technology sector.

Xiaomi’s first equity raising since its HK$42.6bn (US$5.5bn) Hong Kong IPO in July 2018 comprised Hong Kong’s biggest overnight primary follow-on and the largest CB ever issued by a Hong Kong-listed technology company.

Xiaomi had been languishing below its HK$17 IPO price before a rally in technology stocks in 2020 opened a window to return to the equity market. The shares closed at HK$26.15 on December 1 before the deal launched, up 143% from the beginning of the 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 US$855m seven-year put-five convertible bond.

The jumbo combo deal showed a Hong Kong-listed tech company could also access the kind of big-money, opportunistic capital raisings that have convinced many of its peers to go public in the US.

Xiaomi came to market a week after releasing upbeat third-quarter results. It raised HK$23.7bn from the top-up placement, pricing the shares at the bottom of the indicative range or a discount of 9.4% to the pre-deal close.

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.

Xiaomi’s zero-coupon CB, which raised US$900m in proceeds at the issue price of 105.25, priced at the kind of aggressive terms usually reserved for the US market. The deal simultaneously achieved the most negative yield and the highest conversion premium for any CB from a Chinese tech issuer, as investors jumped at the rare chance to own an inve tment-grade equity-linked product from the sector.

The CB priced 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 is rated Baa2/BBB–/BBB and established its first credit benchmark with a US$600m 10-year bond in April.

The CB was also 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.

Xiaomi shares fell 7.1% to HK$24.30 on December 2, holding firm above the placement price, before rebounding quickly. The stock finished the year at HK$33.20, and the CB at around 126.

Credit Suisse, Goldman Sachs, JP Morgan and Morgan Stanley were joint bookrunners.

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