China's Second Biggest Smartphone Maker Tumbles Most Ever After Record Equity Offering

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by Tyler Durden
Wednesday, Dec 02, 2020 - 09:34 AM

China's second largest cell phone maker, Xiaomi, dropped the most ever in Hong Kong after the company raised US$3.1 billion in the city's biggest follow-on equity offering on record. The stock plunged as much as 12% to $HK23.10 as trading resumed at 1pm local time.

Traders were surprised when Xiaomi's shares were initially halted during the morning session after the company failed to disclose the placement in time for the open. Eventually, the company confirmed it had raised US$3.1 billion selling shares at HK$23.70 apiece, or a 9.4% discount to its last close, in a filing released during the midday break Bloomberg reported. Credit Suisse Group, Goldman Sachs Group, JPMorgan Chase & Co and Morgan Stanley arranged Xiaomi's offering. Apparently they did a good job since shares closed at HK$24.30, or well above the offering price.

The company's failure to announce the stock sale on time came a month after Hong Kong was rattled by an abrupt decision by Chinese regulators to pull Ant Group's planned initial public offering, which would have been the largest ever, after China's president took personal aim at Jack Ma's growing financial empire and influence.

"It's definitely unusual because other companies which had share placements usually file the official announcements soon after pricing," said Castor Pang, head of research at Core Pacific-Yamaichi International Hong Kong.

Hong Kong's stock exchange requires a company to apply for a trading halt if certain inside information has been made public before an official disclosure. Bizarrely, Bloomberg News first reported the deal on Tuesday, a day before Xiaomi's official disclosure.

Despite the record drop, investors will hardly be disappointed: Xiaomi shares have rallied a record 143% this year, though they slipped from a high last month after the company said its internet services revenue had grown at its slowest pace in three years in the quarter ended September.

Proceeds from the share sale as well as a separate issue of more than $800 million in convertible bonds will add to a liquidity buffer meant to help Xiaomi continue taking market share from competitors such as Huawei. Xiaomi has successfully grabbed market share from Huawei after American sanctions deepened particularly in overseas markets from Europe to India.