Lenders vie for $1b Xiaomi war chest loan

China's Xiaomi set to plant its flag in $1 billion offshore loan debut for potential acquisitions.

Chinese smartphone company Xiaomi is expected to raise $1 billion through a corporate loan and has seen strong commitments of at least $3 billion from lenders in its debut international fund raising, according to two sources familiar with the matter.

Lenders keen to build a relationship with the young fast-growing cash rich company, which is raising the money as dry powder for acquisitions. 

"Xiaomi has no onshore borrowings, the company is net cash and they are raising funds for warchest purposes," said the first source familiar with the matter.

Xiaomi was founded in 2010 by entrepreneur Lei Jun. The privately owned Chinese electronics company is one of China’s biggest electronics companies and designs, develops and sells smartphones, mobile apps and consumer electronics. Xiaomi, which has been dubbed by many as China's version of Apple, has a vastly different business model however.

The company sells high-end smartphones at low prices online, does not have any retail shops and spends little on advertising. 

Xiaomi has already been making small acquisitions. In November 2012, it acquired Duokan, a maker of e-reader software and Apple TV apps for an undisclosed amount. Earlier this year, Xiaomi Ventures bought a 4.7% stake in Kingsoft’s online and mobile games subsidiary Westhouse for $20 million. 

Xiaomi last year overtook Apple in China and this year, it overtook Korean giant Samsung Electronics in the China smartphone market. However, Xiaomi is seeking to grow outside of China and focusing on emerging market countries such as Brazil and India. Its lenders are diverse, with a total of about13 different nationalities, including Brazilian bank Banco de Brasil and three Taiwanese banks.

A total of 20 banks have already committed $150 million each for the title of mandated lead arranger. There were three banks at the start, which were Deutsche Bank, JP Morgan and Morgan Stanley. They were followed by 17 banks clamouring to lend, which are ANZ, Banco de Brasil, Bank of East Asia, Bank of Taiwan, BTMU, Barclays, BNP Paribas, Cathay United Bank, Credit Suisse, CTBC Bank, Goldman Sachs, Hang Seng, ICBC Asia, ING, Maybank, Standard Chartered and Wing Lung Bank. They are all mandated lead arrangers.

Banks are keen to build relationships with the fast-growing Xiaomi, given its parallels with Alibaba, which had tapped the syndicated loan markets in 2012 to fund the privatisation of Hong Kong-listed Alibaba. Alibaba subsequently re-listed on the New York Stock Exchange, in a $25 billion IPO, which is the world's largest.

According to the first source familiar with the matter, there are no immediate plans for Xiaomi to list, and it wants to be a much bigger company before listing. 

The three-year debut loan, which comprises a $500 million three-year term loan and a $500 million revolver, pays a margin of 232.5bp. There is also a fee of 105bp for commitments of $30 million and above, 85bp for commitments of $20 million to $29 million and 65bp for $10 million to $19 million.

The loan is currently in general syndication and a bank meeting was held in Taiwan last week due to strong interest from Taiwanese lenders. The company has come under probe in Taiwan, where the Taiwanese government is investigating whether Xiaomi is a cyber security threat, but the company was able to address their concerns, the second source familiar with the matter said.

The syndicated loan is expected to close mid-October. 

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