Upfront
OPINION INTERNATIONAL FINANCING REVIEW ASIALeap of faith
X
iaomi’s giant IPO is widely seen as a turning point for
Hong Kong, and for China’s technology sector. So far,
it’s looking more like a leap of faith.
Years ago, when a certain global bank looked to buy credit
insurance for a loan it had agreed to China’s Xiaomi, the
insurer – quite reasonably – asked to see the company’s
lNANCIALSû4HATSûWHENûTHEûDEALûHITûAûSNAGûTHEREûWERENTûANY
8IAOMISû)0/ûlLINGûLASTûWEEKûLIFTEDûTHEûLIDûONûONEûOFûTHEû
COUNTRYSûBEST
KNOWNûTECHNOLOGYûBRANDSûFORûTHEûlRSTûTIMEû
With access to the historical results, creditors no longer
need to take the smartphone maker on blind trust.
For equity investors and the Hong Kong stock market,
however, the deal is a step into the unknown.
8IAOMIûWILLûBEûTHEûlRSTûCOMPANYûWITHûAûDUAL
CLASSû
SHAREHOLDINGûSTRUCTUREûTOûmOATûINû(ONGû+ONG ûUSINGûNEWû
listing rules designed to attract “innovative” issuers to the
city’s exchange.
A successful debut would be early vindication of Hong
+ONGSû)0/ûREFORMS ûANDûAûVOTEûOFûCONlDENCEûINûTHEûCITYSû
long-term future as a conduit for Chinese capital.
But this is no slam dunk.
Xiaomi is said to be targeting a high valuation for the
listing, with discussions starting at US$70bn and a P/E target
of more than 80 times 2017 earnings (compared to less
THANûNINEûFORû3AMSUNGûANDûûFORû!PPLE û4OûADDûAûTWIST û
its founder has pledged to cap the margin it makes from its
hardware devices at 5%.
Recent IPOs from the technology sector are also giving
investors pause for thought. ZhongAn Online P&C
)NSURANCE û4ENCENTSûE
BOOKûBUSINESSû#HINAû,ITERATUREûANDû
gaming hardware maker Razer all popped when they went
public towards the end of 2017, but have given up most of
those gains.
ZhongAn and Razer are well below their IPO price. China
,ITERATUREûISûSTILLûûINûTHEûMONEY ûHAVINGûALMOSTûDOUBLEDû
on its debut.
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Friday despite a wildly oversubscribed public offering.
8IAOMIûCANûREVERSEûTHATûTREND ûBUTûITûWILLûlRSTûNEEDû
to convince investors of its growth plans and list at a
reasonable valuation. If it fails, Hong Kong’s leap into the
unknown will be looking more like a step backwards.On the right track
4
he Asian Development Bank is cosying up to the
private sector, if last week’s annual meetings are
anything to go by. In capital markets terms, that is
long overdue.
4HEûPRIVATEûSECTORûFEATUREDûUNUSUALLYûPROMINENTLYûONûTHEû
agenda in Manila. Executives from Veolia Japan, McKinsey,
Unilever and China’s Ant Financial, among others,
addressed delegates on topics ranging from gender diversity
TOûlNANCIALûTECHNOLOGY
As well as a welcome departure from the usual
PONTIlCATINGûBETWEENûMULTILATERALûBANKERSûANDûlNANCEû
ministers, the discussions offer real hope for greater
engagement between the public and private sectors on
IMPORTANTûlNANCINGûINITIATIVES
4HEûGROWTHûOFû!SIASûINSTITUTIONALûINVESTORûBASEûWASûAû
recurring theme throughout the meetings, making it quite
clear that the drive to leverage private-sector funds into
infrastructure development through the capital markets is
gaining ground in the multilateral sector.
Novel discussions around portfolio-based investments
alongside the IFC, risk-sharing agreements with private
insurers and co-investments with dedicated green funds are
all a step in the right direction.
On the private side, demand for long-term, sustainable
investments is certainly rising, but most of it is from
outside the region. Major hurdles remain in place in Asia’s
local markets, not least regulations that restrict domestic
institutional investors to the most vanilla of investments.
Integration and standardisation is lacking across the
REGION ûANDûEFFORTSûTOûMOVEûINFRASTRUCTUREûlNANCINGûBEYONDû
the banking sector are proving frustrating.
4HEû!$"ûANDûITSûPEERSûCANûHELPûCHANGEûTHAT ûBUTûTHEYûWILLû
need to work with both public policymakers and private
sector investors. In that regard, last week’s line-up of
speakers is cause for celebration.
Ant Financial’s CEO, Eric Jing, likened the path towards
FULLûlNANCIALûINCLUSIONûTOûAû
KILOMETREûJOURNEYû4HEû
progress made so far, he said, through the introduction of
NEWûlNANCIALûTECHNOLOGIESûANDûGREATERûCONNECTIVITY ûHASû
moved Asia only about 100 metres down the track.
He may just as well have been talking about Asia’s capital
markets.For equity investors and the
Hong Kong stock market the
deal is a step into the unknown.