Xiaomi-linked companies halt IPOs after Chinese regulator scrutiny

Companies linked to Xiaomi have come under increased scrutiny from China’s regulators, with some planned IPOs on hold after being questioned about their close relationship with the smartphone giant.

Smart mattress maker 8H, smart lighting company Yeelight and commercial operating system maker Shanghai Sunmi Technology have been shelving IPO plans in recent months, according to documents and Chinese media reports.

The moves came after they were questioned by Chinese regulators about their participation Xiaomi’s “Ecosystem companies,” a variety of groups in which the smartphone vendor either invests directly or has entered into commercial arrangements.

The strategy has been an integral part of Xiaomi’s business model. By March, the company said it had invested in more than 400 companies worth Rmb59 billion (US$8.8 billion), including smart vacuum company Roborock. In comparison, Xiaomi’s net profit was Rmb 19.3 billion last year.

Richard Kramer, senior analyst at Arete Research, said, “Lei Jun [founder of Xiaomi] runs so great. . . Small business empire like a mini Masa Son,” said the head of Japanese tech investor SoftBank.

The probes came as China’s regulators went cold Tech giants are building huge investment portfolios as part of its broader anti-monopoly campaign that has wiped out billions of dollars in value from the country’s largest companies.

It also put further pressure on Xiaomi’s business after the smartphone maker reported disappointing first-quarter results meets regulatory hurdles in Indiaits second largest market.

China’s securities regulator said in March there is no restriction on companies in which Xiaomi has invested to go public. But scrutiny of related companies has raised concerns that the group has not escaped the anti-monopoly campaign brought down Alibaba’s Jack Ma.

“Xiaomi owns several different investment vehicles. . . and the government is sensitive to disorderly capital expansion,” said a Xiaomi investor.

Chengdu-based 8H proposed an IPO on the Shenzhen Stock Exchange in June last year, but since then the company has faced two rounds of questions from the CSRC, according to company filings.

It answered the first round of questions 47 days after it was filed by the country’s top securities regulator, but has not responded to the security regulator’s second round of questions on Jan. 29, and the IPO is pending.

The CSRC asked about the company’s trust in Xiaomi and whether 8H received preferential treatment in relation to the sale and promotion of its products through Xiaomi’s e-commerce websites.

According to the prospectus, Lei’s venture firm Shunwei Capital and Xiaomi-backed Tianjin Golden Rice Investment Limited Partnership jointly own a 12 percent stake in 8H, while Xiaomi is one of the company’s top five suppliers.

Lighting company Yeelight withdrew its application to list on Shanghai’s Star Stock Exchange last July after two rounds of inquiries from the Shanghai Stock Exchange focused on how separate the company was from Xiaomi.

“Please clarify to what extent Xiaomi intervenes in and controls the technology, procurement, production, delivery and sale of the company,” says one of the exchange’s inquiries.

Yeelight President Liu Daping attributed the IPO pullback to “political adjustments” and said he would try to revive the offering in the future.

Shanghai Sunmi Technology withdrew its listing application in February after receiving two rounds of questions from the Shanghai Stock Exchange.

8H did not respond to a request for comment. Sunmi said the IPO withdrawal was a “prudent decision based on the company’s latest development strategy.”

Xiaomi said that each of the companies is independent. “It is not possible for us to understand whether [or] why they can [to or] no IPO possible,” the company said. “Apart from Xiaomi’s investment and the launch of some . . . products, they develop their business independently.”

Xiaomi-linked companies halt IPOs after Chinese regulator scrutiny Source link Xiaomi-linked companies halt IPOs after Chinese regulator scrutiny

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