<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/79ad9e21-1016-46cd-95a8-af5d9e63fd61.jpeg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/79ad9e21-1016-46cd-95a8-af5d9e63fd61.jpeg"/> Author | Wang XiaojunEditor | Zhou Zhiyu, Huang YuThe wildly popular Xiaomi has encountered turbulence following a share placement announcement.On March 25, Xiaomi Corporation announced a placement of 800 million new shares at a price of HKD 53.25 per share, raising HKD 42.5 billion. Xiaomi stated that the funds would primarily be used for business expansion, research and development investment, and other general purposes.From market feedback, the news of this high-priced share placement has triggered a sense of &#34;panic&#34; in the market, with Xiaomi's stock price plummeting over 6% on the same day, resulting in a market value evaporation of nearly HKD 100 billion. On March 26, the stock price only slightly increased by 1%.Lei Jun has long been referred to as the &#34;King of Cash in Beijing,&#34; and Xiaomi recently released its &#34;strongest financial report ever,&#34; suggesting that it should not be short of funds. By the end of 2024, Xiaomi's total cash reserves are expected to reach RMB 175.1 billion, and in the fourth quarter of last year, the losses in its automotive business were also decreasing.Therefore, the market continues to question the necessity of this financing and the management's motives: Given the ample cash reserves on the books, why did Xiaomi choose to conduct a high-priced discounted share placement?This brings us back to Xiaomi's innovative businesses in automotive and AI. Although the automotive business has a high order volume, production capacity is still in &#34;hell,&#34; and factory construction requires significant investment, with subsequent models also being &#34;money pits.&#34; Additionally, AI is a field that Xiaomi cannot afford to miss, which also requires high-density R&amp;D investment.Currently, both of these businesses are in a race against time, and Xiaomi must prepare ample ammunition.However, for investors, having not received dividends and now facing the dilution of their shares, there is naturally some dissatisfaction.<h2>Market Value Evaporates by Nearly HKD 100 Billion</h2>In this share placement, Xiaomi adopted the &#34;old shares first, new shares later&#34; placement method, a unique quick financing tool in the Hong Kong stock market.The specific operation method is that major shareholders first lend their shares to the listed company, which then places these shares to third-party investors; after issuing new shares, the listed company returns these new shares to the major shareholders to repay the previously borrowed shares.In Xiaomi's share placement, this means that major shareholder Lei Jun lent his old shares to the listed company for placement to institutional investors, and then the company issued new shares to return to Lei Jun. After the placement, Lei Jun's shareholding ratio decreased from 24.1% to 23.4%, but due to the existence of Class A shares (10 votes per share), Xiaomi ultimately achieved financing while Lei Jun's voting rights only slightly decreased from 64.9% to 64.1%, maintaining overall control stability.Although this mechanism is efficient and ensures the stability of control, it has raised some market doubts and panic. This is reflected in the stock price, which closed down over 7% on March 25, with a market value evaporation of nearly HKD 100 billion. On March 26, the stock price slightly rose by 1%, but the recovery was not significant.Many investors are concerned that the issuance of a large number of new shares will dilute earnings per share. Moreover, with Xiaomi's stock price currently at a high level, the placement price is at a 6.6% discount to the previous day's closing price. After institutional investors acquire shares at a low price, they may sell their existing holdings to lock in the price difference, exacerbating market selling pressure. This is reflected in market trading, where Xiaomi's total trading volume reached HKD 71.8 billion yesterday, setting a historical &#34;record high.&#34;After the placement was completed, the combined shareholding ratio of other shareholders decreased from 75.9% to 73.6%, diluting the equity of investors who did not participate in the placement, which has raised questions from this group of investors.In addition, many investors are also dissatisfied with the fact that Xiaomi currently has ample cash, with cash reserves exceeding 170 billion yuan. If they are short on funds, why not use their own funds first instead of raising money from the capital market?This brings us to some other indicators in Xiaomi's financial report.As of the end of 2024, Xiaomi's current ratio is 1.28, and the quick ratio is 0.93, which is the lowest level since 2017. These two indicators represent the company's ability to repay debts; the higher the indicator, the stronger the short-term debt repayment ability. This means that although Xiaomi currently appears to have sufficient funds, its debt repayment ability has been affected under significant investments. Additionally, Xiaomi's debt-to-asset ratio also increased compared to the previous year, rising to 53.06%.This placement also reminds the market of Xiaomi's placement event four years ago. In December 2020, just before Xiaomi officially announced its entry into the automotive industry, Xiaomi placed 1 billion shares at a discount of 9.4% to the previous day's closing price, at 23.7 HKD per share, raising approximately 24 billion HKD. At that time, Xiaomi's stock price also experienced a significant drop, falling by about 10%.However, after the last placement, Xiaomi's stock price rebounded a few months later. At that time, Xiaomi's mobile phone and AIoT businesses both saw significant growth, and Lei Jun announced that he would fully support Xiaomi's automotive efforts, providing the market with new imaginative space.But currently, Xiaomi's stock price is already at a high level, and its ability to rebound in the future is in doubt.JP Morgan recently downgraded Xiaomi's rating from &#34;Overweight&#34; to &#34;Neutral,&#34; believing that Xiaomi's fundamentals remain strong, with core profits growing steadily and strong momentum in electric vehicle shipments, but after recent strong performance, there is little surprise left for the market this year.<h2>Cash-Intensive Businesses Require Ample Funds</h2>Investor dissatisfaction is just one aspect; behind the fundraising is Xiaomi's race for survival in the automotive and AI sectors, which is a long-term future and a key to realizing imagination. Moreover, both of these are sufficiently cash-burning games.Take the automotive sector as an example; in the current highly competitive automotive market, few companies feel that their funds are sufficient. Whether they are already profitable or not, they are all looking for money to cope with the market clearing in the coming years.In early March, BYD also placed 129.8 million new H-shares at 335.20 HKD per share, with the net proceeds expected to be approximately 43.4 billion HKD after deducting commissions and estimated expenses. BYD stated that these funds would be used for the group's R&amp;D investment, overseas business development, replenishing working capital, and general corporate purposes. At that time, BYD's stock price also experienced a short-term drop.After all, in the automotive business, having abundant cash cannot compete with continuous heavy asset investment.Earlier this year, during a live broadcast, Lei Jun stated, &#34;Xiaomi's investment in automotive R&amp;D has exceeded 13 billion yuan, and considering comprehensive expenses such as factory construction, store openings, and salaries for over 10,000 employees, the total investment in the entire project to date is close to 30 billion yuan.&#34; In 2024, Xiaomi delivered 137,000 vehicles, incurring a loss of 6.2 billion yuan, averaging a loss of 45,000 yuan per vehicleIn 2025, Xiaomi Auto still needs to continuously inject long-term capital into production capacity and future models. In terms of production capacity, this is the biggest factor limiting Xiaomi's current scale and has been one of the most heavily invested areas for some time.On March 11, the Economic and Technological Development Zone Branch of the Beijing Municipal Planning and Natural Resources Commission announced an important land planning scheme, with the site covering approximately 52 hectares, located adjacent to the Xiaomi Auto factory. According to market news, Xiaomi plans to use this land to expand the under-construction Phase II factory, which will increase the area from the original 53 hectares to about 105 hectares to meet the continuously growing order demand.The expansion of area also means an increase in construction costs, which is the direct investment required.In terms of the supply chain, Xiaomi is also addressing capacity issues through its own investments. Previously, the N3 front subframe welding production line project of Xiaomi Auto Technology Co., Ltd. has officially landed in the Jinxia District of Wuhan, and after completion, it is expected to produce 300,000 sets of Xiaomi N3 front subframes annually.Beyond production capacity, Xiaomi plans to launch the new Xiaomi YU7 in the middle of this year, and there are also plans for range-extended models in the future. Each new model requires substantial financial support. In the coming years, Xiaomi Auto will also need to invest in channels, overseas expansion, and each of these requires significant investment.Additionally, major companies are currently competing for dominance in AI. Although Xiaomi has stated that it will invest 7.5 billion in R&amp;D in the AI field this year, this is still not enough compared to other leading companies. This also means that to gain a certain voice in the AI field in the future, more investment will be needed.It is evident that although Xiaomi is currently on a good trajectory, the conditions for future expectations to be fulfilled are extremely stringent. Xiaomi needs to work hard enough to realize these visions for the market to further recognize its ability to deliver.Analysts at UBS have stated that Xiaomi's current stock price has reached the most optimistic scenario expected by analysts, and there are catalysts for further increases, but the execution conditions required are extremely harsh. Analysts also believe that Xiaomi's electric vehicle business will be constrained by capacity bottlenecks, and the current valuation already includes high growth expectations for the electric vehicle business in 2026.This early fundraising is also due to Xiaomi's historical experiences of facing multiple funding squeezes, and Lei Jun is unwilling to fall into the same predicament again, thus preparing in advance.Last year, when ZEEKR &#34;plummeted&#34; and even employee social security payments could not be made, a statement by Lei Jun was brought to light. In the statement, Lei Jun said, &#34;There was a time when the company couldn't pay salaries, and I was so anxious that I couldn't sleep for many nights. As a result, I must leave a cash reserve in the company's account, which cannot be touched even if the sky falls, to ensure that we can pay 18 months' worth of salaries.&#34;Currently, Xiaomi has chosen the heavy asset tracks of automobiles and AI. Facing extremely stringent conditions for fulfillment and the race against time, only by accelerating delivery can Xiaomi break through again

XIACY

01810

Realizing imagination requires sufficient ammunition

- Xiaomi Group announced a placement of 800 million new shares at HKD 53.25 each, raising HKD 42.5 billion for business expansion and R&D.  
- The announcement led to a market reaction, with Xiaomi's stock dropping over 6% on March 25, resulting in a market value loss of nearly HKD 100 billion.  
- Investors expressed concerns over the necessity of this financing given Xiaomi's substantial cash reserves, questioning the management's motives amidst ongoing investments in its automotive and AI sectors.

Wallstreetcn

High-level placement of shares, Xiaomi's market value evaporated by nearly HKD 100 billion in a single day