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Poor start for Xiaomi - IPO draws bids at discount in grey market

Just US$3.1 billion raised after pricing IPO at bottom end of a range

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Xiaomi is the first in Hong Kong to sell shares with a dual-class structure since the city changed its rules to allow founders to keep outsized voting rights.

Hong Kong

XIAOMI'S debut is off to a bad start even before its shares officially begin trading in Hong Kong on Monday.

Some institutional investors saw bids for the Chinese smartphone maker's shares as low as HK$15.20 (S$2.63) on Thursday with no offers in grey-market trading, according to two people familiar with the matter. That's 11 per cent below the issue price.

There was some selling interest at a 5 per cent discount though no firm offers, according to Andrew Jackson, head of Japanese equities at Soochow CSSD Capital Markets in Singapore.

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The tussle over Xiaomi's high valuation and concern over a US-China trade war have overshadowed what had been one of the world's most highly-anticipated initial public offerings of the year.

The smartphone maker said on Friday it raised just US$3.1 billion after pricing the IPO at the bottom end of a range, cutting its valuation to about US$54 billion - roughly half of the initial goal. The company also scrapped a plan to sell shares on the mainland after failing to satisfy regulators.

Traders will be able to bet on further declines by shorting the stock on its first day of trading, according to the Hong Kong exchange operator.

The company is the first in Hong Kong to sell shares with a dual-class structure since the city changed its rules to allow founders to keep outsized voting rights, although that means the stock won't be included in MSCI's global benchmarks.

After a sizzling 2017, Hong Kong's tech listings are now struggling. Ping An Healthcare & Technology's May debut flopped after the retail tranche was 600 times oversubscribed. Razer, a maker of gaming laptops and accessories, and online car-financing provider Yixin Group trade more than 50 per cent below their November issue price.

Retail investors failed to show much interest in Xiaomi despite the hype, but those who bought into the IPO may be able to flip their shares from Friday.

Phillip Securities Group typically begins operating a grey market one trading day before the debut. BLOOMBERG