China’s Xiaomi has raised almost $4bn as the smartphone group seeks to take advantage of its surging stock price and capture more global market share, and while rival Huawei’s sales suffer due to US sanctions.
Xiaomi sold equity worth HK$23.7bn ($3.1bn) in a follow-on offering in Hong Kong, according to a term sheet seen by the Financial Times on Wednesday, or a 9.4 per cent discount to the previous day’s closing level.
The tech group brought in another $855m by selling a convertible bond, which gives investors the option to swap the debt for Xiaomi shares if the stock climbs by a certain amount. The bond, which does not pay interest, matures in seven years.
Beijing-based Xiaomi has benefited as the US has piled pressure on Huawei. Its stock has risen more than 140 per cent this year as US sanctions that largely cut Huawei off from global chip supplies have pummelled its rival’s global sales. Washington claims Huawei is a national security threat, which the Chinese group denies.
Rising sales at Xiaomi pushed it above Apple in terms of global smartphone market share in the third quarter to secure third place. Xiaomi’s European shipments grew 91 per cent year-on-year in the third quarter, handing it near one-fifth of the market. It is the top smartphone vendor in India with a quarter of the market.
Xiaomi said in its term sheet it will use the $4bn capital raise for “strengthening working capital for business expansion [and] investments to increase market share in key markets”, among other uses.
Wu Yiwen, an analyst at research firm Strategy Analytics, said the financing would help Xiaomi “speed up overseas expansion” and grab market share from Huawei.
The company will “invest in expanding channels to eat up Huawei’s market share”, added a Taiwan-based industry analyst, noting that Xiaomi would also invest in designing its own chips as it follows US tech group “Apple and Huawei to develop a more complete independent industrial chain”.
Moody’s, the credit rating agency, expects revenues at Xiaomi to rise 15 per cent year on year over the next 12-18 months to Rmb275bn ($42bn). That increase could be supported by the “increasing market share of its smartphone business, and by the increasing revenue streams outside of mainland China”, it added.
Xiaomi is known for selling premium handsets at razor-thin margins. Its gross profit margin for smartphone sales stood at 8.4 per cent in the third quarter.
Xiaomi’s global smartphone shipments rose 46 per cent year on year to 46.2m in the third quarter, while Apple’s shrank 7 per cent, according to data from research firm Counterpoint.
The surge in Xiaomi’s sales means that, along with Samsung and Huawei, the world’s top three handset makers are all from Asia.
Trading in Xiaomi’s shares was halted in Hong Kong on Wednesday.
Additional reporting by Nian Liu in Beijing.