According to reports, Chinese smartphone maker Xiaomi is planning to raise around $4 billion. This will happen with the aid of a top-up placement and sale of convertible bonds. Around $3.2 billion will be raised from selling 1 billion shares in a top-up placement. The rest of the amount ($ 855 million) will be accumulated by selling a seven-year, zero-coupon convertible bond. A zero-coupon bond means that Xiaomi cannot pay coupon payments and pay the amount decided back at the maturity. Xiaomi’s deals will be managed by JPMorgan Chase & Co., Goldman Sachs, Morgan Stanley, and Credit Suisse.
The 1 billion shares will be sold at HK$23.70 to HK$24.50 (the final price will be decided on Tuesday). Thus, at a 7%-9% discount to its Monday’s closing price of HK$26.15. It will make this deal the largest top-up placement of Hong Kong. Currently, this record is held by CNOOC Ltd. They raised $1.9 billion in 2006.
Chinese smartphones are known for their innovative features and cost-effective nature. Due to their steady manufacturing units and lower labor costs, Chinese companies like Xiaomi have attracted many customers worldwide. The company reported a 19% overall rise in net profit in Q3FY21. Also, they registered a 45% gain in shipments year-on-year (YoY). A major reason behind this rise is the international struggles of their competitor Huawei Technologies. Donald Trump-led, the US imposed several sanctions on Huawei Technologies, citing national security concerns. It is no coincidence that Huawei saw a 24% drop in total shipment during the same period.
Xiaomi has been on a terrific bull rally for a year now. On 1st December 2019, they were trading around HK$9, whereas today, they ended the day at HK$26.15. The $4 billion they are raising can be further use to expand their business. Huawei Technologies is one of their primary competitors. It might be a perfect time for Xiaomi to invest in R&D and boost its product line. They have already tried to capture some of the other companies’ market shares in the past year. These funds will make the company stronger to compete in the future.