Two of the companies which have emerged from Asia to move the goalposts in the mobile industry, Softbank of Japan and Xiaomi of China, are both considering IPOs (initial public offerings).
Softbank could be set for an $18bn IPO value if it goes ahead with reported plans to spin off its domestic telecoms units as a separate entity, thereby offering about 30% of its shares to the market.
In a statement to the Tokyo stock exchange, Softbank said: “We are always studying various capital strategy options. The listing of Softbank Corp. shares is one such option, but no decision has been made to officially proceed with this course”.
However, some analysts expect the IPO to be launched as early as the second quarter, and the funds that would raise could accelerate its ambitious program of investment in hi-tech companies – and that of its chairman Masayoshi Son and his massive Vision Fund.
The IPO could help unlock value from the Softbank conglomerate which has a market value of about Yen10 trillion – but assets such as its stake in Alibaba could be worth more than that, say analysts, perhaps as much as Yen19 trillion.
“The listing of its domestic mobile unit has been one of the key moves we have been anticipating for the firm to raise cash and lower its debt levels,” Amir Anvarzadeh, head of Japanese equity sales at BGC Partners in Singapore, wrote in a client note.
The mobile business has an enterprise value of about $71bn, according to Chris Lane, an analyst at Sanford Bernstein. The Japanese wireless operator generated Yen913bn of revenue in the first half of its fiscal year, to September 2017, and it has 32.8m mobile subscribers.
Meanwhile, Son made about 100 investments last year in areas from ride sharing to robotics to autonomous driving, with a total value of $36bn, according to research firm Preqin. “I have never thought that Softbank’s core business is telecommunications in any one day in my whole life, because Softbank’s core business is information revolution,” Son said at a briefing in November.
The $100bn Vision Fund is important to Son’s more futuristic activities because it keeps these off the SoftBank books and enables him to tap into other sources of investment, which would not necessarily be interested in a telco. Son owns only 19% of SoftBank, and so cannot sell shares or raise cash directly without weakening his control.
Meanwhile, handset maker Xiaomi has chosen Morgan Stanley, Credit Suisse, Deutsche Bank and Goldman Sachs, among others, to manage its planned IPO, sources told Bloomberg. The company could target a valuation up to $100bn and it will also select Chinese underwriters.
When Xiaomi raised money in 2014, it achieved a valuation of $45bn. Its fortunes fell in 2016 when it lost market share rapidly and ran into patent battles with Ericsson. But last year it recovered, becoming the second largest handset vendor (after Samsung) in India and reaching its $15bn sales target for 2017 by the end of October.
Having focused on emerging markets so far, it aims to enter some developed markets too, starting with Spain last year and casting its eyes towards the US. Like most smartphone ecosystem players, it has been reducing its reliance on that sector and is offering many connected devices, investing in more than 10 start-ups offering wearables, smart home appliances and so on.
Under this model, it takes a cut of partners’ sales in return for the use of its ‘Mi’ brand and its incubation services and channels. It says sales from its ecosystem doubled to CNY20bn in 2017.
“The Chinese smartphone market looks stable for Xiaomi, but expanding sales from ecosystem partners could drive Xiaomi’s valuation,” said James Yan, an analyst with Counterpoint Research. He told Bloomberg that Xiaomi’s efforts to build a large developer base would also be an asset since, in software, “Xiaomi enjoys a big edge as other Chinese vendors lack a well-established software business.”
In response to losing market share in China to rivals such as Huawei and Oppo, Xiaomi has been expanding its retail network and aims to open 1,000 ‘Mi Home’ stores (twice the number Apple has worldwide) by 2019, bringing in CNY70bn of retail sales by 2021.