Xiaomi's shares open 2.9% down on debut in Hong Kong

Xiaomi's shares open 2.9% down on debut in Hong Kong

The Chinese smartphone maker co-founded by billionaire Lei Jun traded as low as HK$16.50 in early trade compared with its HK$17 initial public offering price. The stock opened at HK$16.60, below the list price of HK$17, and it quickly fell to HK$16 before later recovering.

Xiaomi's IPO valued the firm, which also makes internet-connected home appliances and gadgets, at about $54 billion, nearly half the $100 billion it had initially hoped for and below its more recent target of at least $70 billion.

Shares in Xiaomi, the Chinese mobile phone maker, slid nearly 6% at the start of trading in Hong Kong.

It's also a disappointment for Hong Kong, which this year revised regulations to allow tech companies with uneven voting structures like Xiaomi to float.

Despite Xiaomi's challenging debut, Reuters notes that Hang Seng - the Hong Kong stock market index - was 1.7 percent higher. Apple is trading at 16 times earnings and Chinese social media giant Tencent is trading at 36 times.

Typically companies are valued on a multiple of profits or sales.

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"We are an internet firm", Xiaomi's founder and chief executive Lei Jun told the listing ceremony at the Hong Kong stock exchange.

Speaking at the ceremonial opening of trading, Xiaomi's chairman Jun Lei acknowledged that the timing of the IPO might not be optimal given the state of trade friction between the U.S. and China. There has been a bit of debate as to whether or not it is a hardware company or an internet company, perhaps when the dust settles and investors know what they're getting into we could see the price move in Xiaomi's favour. It is also the first under the city's new rules permitting dual-class shares, common among USA tech firms, in an attempt to attract tech sector floats.

Shares of some other tech-related companies that floated recently have been weak in Hong Kong.

But doubts about the sustainability of its business model were among the reasons for the lower valuation, analysts said.

The company is now the biggest smartphone vendor in India and is pushing into European markets including Spain and Russian Federation, though it has lost share in China recently to lower-cost rivals.

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