China's Unicorn Funds to Facilitate IPOs for Overseas-Listed Techs; First Up, Xiaomi
China finalized its guidelines late Wednesday for Chinese depositary receipts to pave the path for overseas-listed tech giants like Xiaomi, Alibaba, and Tencent to trade domestically.
In anticipation of Xiaomi's initial public offering expected in July, China finalized its guidelines late Wednesday for yuan-denominated securities, or Chinese depositary receipts (CDRs).
Companies listed overseas can now apply to trade their shares in China under the new fast-track program, according to the South China Morning Post. Formalizing the CDRs was the last block paved by Beijing in the path for tech giants eyeing the domestic market, including Tencent Holdings Ltd., JD.com Inc. (Nasdaq: JD), and Alibaba Group Holding Ltd. (NYSE: BABA), along with its unicorn Ant Financial Services Group.
The first to trade in the mainland under new regulations will likely be Xiaomi Inc., the world's fourth-largest smartphone maker. The company has been planning to split its shares between Hong Kong and China in its $10 billion IPO, the largest in four years globally, which is expected to take place in early or mid-July.
The Bank of China is serving as the custodian bank to hold the depositary receipts in escrow, according to the Morning Post, citing sources. China's securities regulators have established six mutual funds through which investors would be able to invest in Xiaomi's CDRs.
The funds would seek out startups valued at more than $1 billion, like Xiaomi, and make strategic investments. A funding would not exceed 500,000 yuan (approximately $78,000), with a lock-up period of three years. The funds would charge a management fee less than 0.1 percent, and less than 0.03 percent in custodian fees, significantly less than ordinary fund products, the Morning Post said. The funds, to begin operations within a week, can raise a combined $47 billion for anchor investments in CDRs.
Xiaomi is planning to sell up to 30 percent of its offering in China. The company expected to price its offerings for both markets simultaneously and begin trading in China a day before its shares float in Hong Kong.