SoftBank plans massive IPO for its Japanese telecoms business

Tech conglomerate SoftBank wants to raise a few trillion yen by offering some of its Japanese operator up for public consumption.

Around a third of SoftBank Japan’s shares will be served up in an initial public offering that is expected to raise around 2.4 trillion yen (21 billion bucks). If things go really well it could even challenge Alibaba for the biggest ever IPO, which would come in handy for a group that is especially exuberant in its spending.

“Through the listing of SB shares, SBG expects that the respective roles and valuations of the two companies will be clear,” said the announcement. “SBG is accelerating investments on a global scale, while SB is a core company to the Group’s telecommunications business. It is hoped that each of the two companies will be able to provide information regarding their businesses to the market with greater clarity and thereby better respond to the various needs of investors.

An alternative way of looking at it is that SoftBank Group is a bit short of cash and has decided that a sport of equity release from one of its subsidiary companies is the best way to get hold of the kind of cash it needs. As well as big acquisitions such as ARM, the group seems more concerned with general tech investment these days. This IPO seems to have been on the cards for a while, but it remains to be seen how much, if any, of the cash raised will be reinvested in SoftBank’s, Japanese network.

Tencent is aiming to do a Spotify with its entertainment and music business

The China based internet company Tencent, listed on the HKSE, is planning to spin off its music and entertainment subsidiary and list it separately on an exchange in the US.

The chairman of Tencent, Ma Huateng, also known as Pony Ma, made the announcement on Sunday 8 July, one day before Xiaomi’s trading started on the HKSE. Despite the initial price was set at the bottom end of the estimated range, Xiaomi’s share price still closed the day 1.2 percent lower than its opening price, having recovered from a heavy loss of close to 6 percent earlier in the day.

In an interesting twist, Xiaomi’s CEO Lei Jun felt the share price was depressed by the on-going trade disputes between the US and China, when he spoke to the CNN. Meanwhile, the company’s President and Co-Founder Lin Bin told CNBC that the trade war is not a major concern “as Xiaomi had not done much business in the U.S.”

Although Xiaomi is a profitable business, its thin margin (capped at 5 percent by its owner on its hardware business, which accounted for roughly 90 percent of the whole business) made investors deem the price too high.

In comparison, the global leader in streaming music, Spotify, launched its IPO in April this year on NYSE. The price rose by 13 percent on its opening day, rising to $149.01 from the initial offering of $132, despite Spotify being a loss-making company. It was traded at $175.70 when the market closed on Friday 6 July.

We can only wait for Tencent to disclose the profit and loss of its Music and Entertainment group in the run-up to the IPO, but the group, which gets all its business from China, has reported healthy growths. Its paid subscriptions, mainly for video and music, grew by 24 percent to 147 million during the first quarter of 2018, and its total video revenues grew by 85 percent year on year.

The limited appetite on the Hong Kong market, especially when the channel to China-based investors, the instrument called CDR, is hard to come by, in contrast to the enthusiasm to invest in the future on the US market, may have helped tilt the decision by the Tencent board to go for the US stock market.

Xiaomi IPO was compromised by Chinese regulators

Chinese smartphone maker Xiaomi’s initial plan for a dual listing in Shanghai and Hong Kong was hamstrung by the draconian requirements from Chinese regulators.

According to Bloomberg, which cited sources familiar with the situation, Xiaomi failed to address the long list of questions China Securities Regulatory Commission (CSRC) asked, including demand for more information disclosure and profitability projections. This resulted in the company’s decision to scrap its plan to offer Chinese depositary receipts (CDR) at the same time as its IPO in Hong Kong.

This was a blow on two fronts. For Xiaomi, listing on the Hong Kong Exchange and pricing at the lower end of the expected range only raised $4.7 billion, less than half of the $10 billion it had expected to bring in. Market reaction was also lukewarm. The retail part of the offering was 8.5 times oversubscribed, compared with the hundreds of times oversubscription of other recent Chinese offerings in Hong Kong.

CDR was devised to provide a channel to the Chinese investors, in particular the retail investors, to buy into the fast growing Chinese successes. Therefore, for CSRC, the failure to get Xiaomi as the first high profile Chinese company to offer CDR on the Chinese market and IPO overseas simultaneously must be viewed as a setback to its ambition to stamp its authority on the global financial market.

More worrying for CSRC in the future, this could cause the other Chinese companies lining up to offer CDR as well as IPO to rethink their strategies. According to Bloomberg, the questions deemed by CSRC not addressed adequately by Xiaomi are very different from what is required on the Hong Kong market and are asking for much more detailed information to be disclosed. This means companies will find it easier to meet the demands for an overseas IPO than a listing on the domestic markets.

For Xiaomi though, not all doors are shut. In its new prospectus Xiaomi said it would “conduct a CDR offering in mainland China at an appropriate time in the future.” When or whether this will happen remains to be seen.

IPO fails to Xiaomi the money

The initial public offering of Chinese gadget giant Xiaomi seems to has raised considerably less cash than it hoped.

Bloomberg reports that Xiaomi priced the IPO on the Hong Kong exchange at the lower end of its expected range, resulting in a mere $4.7 billion being raised and pricing the company at around $54 billion, far less than had been hoped at the start of the year.

Bloomberg spoke to James Yan of Counterpoint Research, who offered the following analysis: “Xiaomi’s exceedingly thin margins from hardware significantly drags down its valuation for potential investors. I expect it to invest more in the smartphone unit, especially on international expansion. It also needs cash to beef up its ecosystem in markets like India. All those fronts are extremely capital-intensive.”

Another apparent hit on investor enthusiasm was Xiaomi’s decision not to do whatever the equivalent of an IPO is in China for whatever reason. This in turn meant it was going to raise less money and thus be able to reinvest less, hence reducing its investor appeal.

Xiaomi has done a great job of reclaiming market share it lost a year or so ago (see below), but the mere fact it had to do so is a reminder of how volatile the smartphone market is. Combine that with the company’s apparent Apple-style reliance on a captive installed base to flog other stuff to and the great job companies like OnePlus are doing of competing with it directly and you can see why the investment case is far from clear cut.

Xiaomi launches $6 billion IPO in Hong Kong

Chinese gadget giant Xiaomi has launched its initial public offering in the Hong Kong stock exchange that could raise over $6 billion.

2,179,585,000 shares will be on offer at a price range of HK$17 to HK$22 per share. If they all sell at the upper end of that range that will value the company at around $70 billion and raise around $6 billion. A proposed listing in China has been shelved for now.

“Today we present ourselves to you as we prepare to enter a new stage in our journey,” said Lei Jun, Founder, Chairman and CEO of Xiaomi. “We are an innovation-driven internet company committed to the principle of ‘amazing products at honest pricing’.

“Leveraging our unique ‘triathlon’ business model, we maintain excellent design and outstanding quality in our products, while pricing our products as close as possible to cost by selling them to users through highly efficient online and offline new retail channels. We then provide our users with a range of comprehensive and engaging internet services.

“Xiaomi’s achievements so far illustrate the strength and resilience of our model. Within seven years of our founding, our annual revenue exceeded RMB100 billion, achieving a growth rate that many traditional companies are unable to match.

“We believe that the potential of our global business is limited only by our imagination. With our unique ecosystem model, we have mobilized many like-minded entrepreneurs, and we are not only changing industries in China, but also elsewhere in the world.

“Fundamentally, the Internet is all about transparency, efficiency, and equality. We want to allow everyone to enjoy the benefits of technology. That is the goal that all Xiaomi employees and I are working tirelessly for.”

The triathlon business model simply refers to Xiaomi’s involvement in hardware, internet services and ecommerce all at once. In that sense it’s often compared to Apple, but it has only recently started to embrace third party sales channels. Xiaomi plans to spend the money raised equally on R&D, other investments and global expansion.

Xiaomi triathlon

Xiaomi and Hutch make their own buddy movie

Xiaomi is a smartphone company that doesn’t play by the rules, Hutch is a telecoms giant that takes no prisoners. Together they’re dynamite.

Chinese smartphone maker Xiaomi and Hong Kong conglomerate CK Hutchison have announced a global strategic alliance that will see Xiaomi gear being flogged through Hutch channels all over the world. Essentially this means Xiaomi stuff will be available through Three dealers and stores as well as its own website, and Three will have unique access to the world’s fourth largest smartphone maker. They’re both excited.

“We are thrilled to ink this win-win partnership with CK Hutchison, which is a global leader in the retail and telecom industries,” said Xiaomi SVP Wang Xiang. “As we deepen our international footprint, we are excited to partner with CK Hutchison, which will enable us to deliver on our vision to bring innovation to everyone across the world. I believe our wide range of high-quality, well-designed products at accessible and honest pricing will be warmly welcomed by CK Hutchison’s customers.”

“We are excited by this agreement with Xiaomi. With CK Hutchison’s global retail and telecom footprint, Xiaomi will have access to hundreds of millions of customers instantly,” said Canning Fok, CK Hutchison Group Co-MD. “Xiaomi has high quality, well-designed products at accessible prices. We expect them to be well received by both our telecom customers and our general retail customers. This is a win-win situation for both companies.”

It’s been a busy day for Xiaomi as it has also announced its IPO, which you can find not much about in this infuriatingly redacted stock exchange filing. Apparently Xiaomi is looking to raise $10 billion at a company value of $100 billion. If Xiaomi is already so big without retail channels and with a limited geographical footprint, this move should definitely concern Samsung, Apple and Huawei.

Here’s a photo of the main dudes signing bits of paper and smiling: Li Ka-shing, CK Hutchison Chairman (center back), Lei Jun, Xiaomi Founder, Chairman and CEO (left back) and Victor Li, CK Hutchison Group Co-MD and Deputy Chairman (right back), Wang Xiang, Xiaomi SVP (front left) and Canning Fok, CK Hutchison Group Co-MD (front right).

Xiaomi and Hutch

Softbank might IPO its Japanese telecoms unit, then again it might not

In response to a report claiming it’s going to flog $18 billion of shares in its Japanese mobile units. Softbank has said it might, but no decision has been made yet.

The report was brought us by Japanese business title Nikkei, which chatted to someone who reckons SoftBank Group aims to list its Japanese mobile phone unit in Tokyo and overseas this year. The un-named source also reckons the amount of money raised by such an IPO is likely to be in the region of two trillion yen, which is about $18 billion.

Softbank felt moved to respond to this piece of rumour-mongering, issing the following statement: “With regard to today’s Nikkei report on the listing of SoftBank Corp., a subsidiary of SoftBank Group Corp., we are always studying various capital strategy options. The listing of SoftBank Corp. shares is one such option, but no decision has been made to officially proceed with this course.”

SoftBank is the third of three major Japanese MNOs with around 24% subscriber market share according to Ovum’s WCIS service. Narrowly ahead is KDDI and the market leader is NTT DoCoMo. But SoftBank Group also owns Sprint, ARM and a bunch of other stuff, as well as being hyperactive in the general tech VC space. So it’s perfectly plausible that it might want to raise a few extra yen, but right now nothing has been decided. You can read further analysis on Light Reading here.