Xiaomi is said to choose Morgan Stanley among banks for IPO

[BEIJING] Xiaomi Corp selected Morgan Stanley and Goldman Sachs Group Inc among international banks for its planned initial public offering, a person with direct knowledge of the matter said.

Credit Suisse Group AG and Deutsche Bank AG have also been chosen to work on the IPO that could see the company target a valuation of as much as US$100 billion, the person said, asking to not be identified as the details are private. The Beijing-based company is still considering Chinese underwriters and is yet to decide on the timing and location of the share sale, the person said.

Xiaomi, which raised money at a US$45 billion valuation in 2014, could be the biggest IPO since Alibaba Group Holding Ltd's US$25 billion debut. After a disastrous 2016 that saw its market share plunge, the smartphone maker has bounced back by revamping its sales model and pushing heavily into India, where it rivals Samsung Electronics Co. as the biggest vendor. The company topped its annual 100 billion yuan (US$15 billion) sales target by the end of October.

Xiaomi, Goldman Sachs, Credit Suisse and Deutsche Bank declined to comment. A representative from Morgan Stanley didn't immediately respond to requests for comment.

Shares of Xiaomi rivals fell in Hong Kong. Lenovo Group Ltd dropped as much as 1.3 per cent while ZTE Corp lost 2.2 per cent.

Under chairman and co-founder Lei Jun, Xiaomi is looking to enter developed markets for smartphones as it consolidates positions in emerging markets such as India and Russia. It entered Spain last year and is also said to be talking to US carriers to sell devices on Apple Inc.'s home turf.

Apart from smartphones, Xiaomi has backed dozens of startups producing a wide spectrum of products from wearables to rice cookers. Total sales from its ecosystem doubled to 20 billion yuan in 2017, the company said last month. Xiaomi takes an undisclosed cut of its partners' sales, who carry the "Mi" brand on their wares in return for the larger company's backing and guidance. Huami Corp, which makes wearable devices, last week filed for a Nasdaq IPO.

Beyond that hardware network, Xiaomi's experience running an online community of an estimated 200 million and developing software may prove attractive to investors, said James Yan, an analyst with Counterpoint Research. It could generate more revenue from in-app ads and harness growing data on its users, for instance.

"The Chinese smartphone market looks stable for Xiaomi, but expanding sales from ecosystem partners could drive Xiaomi's valuation," he said. In software, "Xiaomi enjoys a big edge as other Chinese vendors lack a well-established software business." Xiaomi's biggest competitors at home include Huawei Technologies Co. and Oppo. After early success with an online flash sales model, which saw devices available on its website for a limited time, Xiaomi found itself outflanked by domestic rivals such as Oppo and Vivo that cultivated relationships with retailers. They helped its competitors win new customers who wanted to touch and test new handsets before buying.

Mr Lei has responded with an ambitious push to expand Xiaomi's own retail network. The company plans to build 1,000 "Mi Home" stores by 2019 - about twice Apple's global store count - targeting 70 billion yuan of retail sales by 2021.

BLOOMBERG