Xiaomi Corp. is considering raising about half of its proposed $10 billion initial public offering from mainland Chinese investors, people familiar with the matter said.
The company may seek about $5 billion from the sale of Chinese depositary receipts and a similar amount from selling shares in Hong Kong, the people said, asking to not be identified as the details are private. The split will depend on demand in the two markets and may still change before the IPO, they said. The company is also targeting a valuation of about $75 billion although that number could also change, the people said.
Since Xiaomi started the IPO process, China has accelerated its push to bring more blockbuster listings to the mainland through CDRs that enable a version of the shares to be traded on domestic exchanges. Selling more equity to mainland investors may be an effort to align Xiaomi with Beijing’s policy goals.
The eight-year-old company published its first prospectus for CDRs in Shanghai on Monday, disclosing a loss of more than $1 billion in the March quarter, as it begins gauging demand for the IPO. The share sale will be used to fuel expansion beyond China and bankroll the development of devices and media services.
The projected valuation on the company has fluctuated amid concern about its prospects with people with direct knowledge of its plans expecting anywhere from $60 billion to $100 billion for the Chinese smartphone maker. The company declined to comment beyond its filing.
China is still developing the final rules for CDRs and raising half the money through such securities would represent a much larger proportion than expected. Reuters reported earlier this month that the company planned to sell about 30 percent of the stock to mainland investors.
In its CDR prospectus, Xiaomi said it plans to use about 40 percent of the proceeds to enlarge its global footprint. Xiaomi reported a 7 billion yuan ($1.1 billion) net loss on revenue of 34.4 billion yuan in the first quarter.
“In 2018, the company plans to enter or consolidate positions in Southeast Asian and European markets,” Xiaomi said in its Chinese prospectus, which didn’t mention a fundraising target. Xiaomi opened its first store in Paris last month, while Senior Vice President Wang Xiang has said multiple times the company is looking to sell smartphones in the U.S. and compete against Apple Inc.
The Beijing-based company saw sales from more lucrative smart-home devices and internet services grow as a proportion of overall revenue in the first quarter. Roughly 31.8 percent of Xiaomi’s revenue in 2018’s first three months came from products such as air purifiers and scooters and online services such as mobile apps, according to the filing. Those two segments contributed 29 percent of sales in 2017.
Its biggest business, smartphones that barely make a profit, declined in importance to just 67.5 percent of sales from more than 70 percent in 2017. Xiaomi said it made a profit excluding one-time items of 1.038 billion yuan in the first quarter.
Xiaomi survived a challenging 2016 to roar back to growth in 2017, bouncing back by revamping its sales model and expanding in India, where it rivals Samsung Electronics Co. as the biggest vendor. Led by billionaire co-founder Lei Jun, the company’s IPO would be the world’s largest first-time share sale since Alibaba Group Holding Ltd. listed in the U.S. in 2014. The IPO is jointly sponsored by banks including CLSA, Goldman Sachs and Morgan Stanley in Hong Kong and CITIC Securities in mainland China.
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