China’s Xiaomi seeks up to $1bn with first international bond

HONG KONG — China’s Xiaomi, the world’s fourth-largest smartphone maker, is seeking up to $1 billion through its first bond sale on international markets, according to people familiar with its financing plans.

The move comes three weeks after the company surprised analysts by posting growth of 27.1% in October-December sales revenues even as global smartphone sales slumped — and by expressing confidence that the impact of the coronavirus pandemic would be short-term.

Known for its full-featured but budget prices models, Xiaomi has captured the highest share of India’s smartphone market and has grown quickly in Europe, where it is now No. 2 in Spain. In its home market, however, it lags behind rival domestic brands Huawei, Vivo and Oppo.

While Xiaomi filed a notice on Monday evening with the Hong Kong Stock Exchange, where it is listed, about its intentions to issue a U.S. dollar bond, it said that the size of the bond issue, the interest rate and other details had yet to be settled. According to three people familiar with its plans, the company is aiming to sell at least $500 million in 10-year bonds. One put the target at $1 billion.

Xiaomi earlier this month made its debut on China’s domestic bond market with a 1 billion yuan issue ($141 million). As of Dec. 31, the company had 47.4 billion yuan in cash and short-term deposits, up from 31.6 billion yuan a year earlier.

The company, though, has aggressive investment plans to keep up its fast pace of growth, with a focus on 5G, artificial intelligence and internet of things technologies, boosting its market share in Europe and other regions, adding to its “ecosystem” of affiliated companies producing products ranging from smart televisions to rice cookers under its brands, and expanding its internet service offerings in e-commerce and other areas. As part of that, Xiaomi is launching an online bank in Hong Kong.

Market sources said that while Xiaomi will likely have to pay a significantly higher interest rate to issue bonds than it would have at the end of 2019, moving now will allow it to take advantage of a vast improvement trading sentiment since a month ago as investors return to the bond market with support of the U.S. Federal Reserve and other central banks.

The three major rating agencies on Monday each rated the debt at or near the bottom of their “investment grade” scale. Xiaomi shares have dropped 2.8% in Hong Kong so far this year, beating the 14% decline in the market’s benchmark Hang Seng Index.

Xiaomi executives said on March 31 that phone production and sales in China had already returned to 80% to 90% of normal levels as the country emerged from worst of its COVID-19 outbreak. Chief Financial Officer Shou Zi Chew said that the company had seen that consumers were treating smartphones as more of an “essential” purchase than a luxury.

“Based on the experience in China, smartphone demand is resilient and will be rebound[ing] quickly,” President Wang Xiang said on the call with analysts. “The long-term growth prospect is intact. We remain confident for the rest of the year.”

JP Morgan, Goldman Sachs, Morgan Stanley and ABC International are joint global coordinators on the deal. AMTD, Bank of China (Hong Kong), Barclays, HSBC and ICBC International are acting as bookrunners.

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