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How to invest in CDR not blindly

via:CnBeta     time:2018/6/12 7:01:46     readed:590

The first finance executive learned that as the founder and actual controller of the Xiaomi Group, Lei Jun appeared on the fund company on the 11th and began a roadshow. In order to obtain a higher starting value, explain to the agency that Xiaomi has already developed from a mobile phone hardware manufacturer to an Internet technology company, becoming a goal of Lei Jun’s “road out” roadshow.

Millet's CDR in the end will be set how much money? How much profit can be gained by strategically placing fund participation in the CDR "playing new"? At present, these two key issues are still inconclusive. At the other end, exaggerated cases such as the promotion of single-entry markets and the repatriation of senior citizens in four-tier cities were promoted by double-digit capital preservation placement funds, and the “blind vote” led by institutional sales was hot.

Millet "lower limit" and "upper limit"

As the first single application after the opening of the New Deal landing CDR, Xiaomi's synchronization of Hong Kong IPO and domestic issue of CDR has attracted the attention of all parties in the market. However, strategic allocation funds have already been sold when Xiaomi has not completed pricing.

According to the regulatory requirements, the first batch of pilot companies must be red-chip listed companies with a market value of at least 200 billion yuan, or innovative companies that have a revenue of at least 3 billion yuan in the most recent year and a valuation of at least 20 billion yuan.

Xiaomi said that the company’s main revenue in 2017 was not less than RMB 3 billion, and during the reporting period, the second, third and fourth round of F round financing, the financing valuation was no less than RMB 20 billion, in line with the innovation pilot Corporate regulations.

The First Financial reporter learned that Lei Jun has already started an institutional roadshow with executives. Xiaomi is a mobile phone hardware manufacturer, or a high-tech Internet company? The division into different industries means that the valuation of the targets is vastly different. This is an important issue Lei Jun is very concerned about.

In the prospectus, Xiaomi called himself "an Internet company with mobile phones, smart hardware, and IOT platforms as its core." Last year, the company's revenue was 114.6 billion yuan, of which the largest business smartphone revenue was 80.6 billion, IOT and consumer products was 23.4 billion, and Internet services were 9.9 billion.

As the IPO approached, the valuation of the company rose. Xiaomi’s loss due to changes in the fair value of convertible redeemable preference shares increased. As of March 31, 2018, the company’s uncovered loss amounted to RMB 135.2 billion. However, after deducting non-performing loans, the net profit attributable to the common shareholders of the parent company was -2.238 billion yuan. In 2017, 2016, and 2015, it was 233 million, 3.945 billion, and 1.038 billion, respectively.

Based on the scale of this kind of profit, Xiaomi's valuation method is doomed to be different from the past practice of A-share listing. However, in the Xiaomi prospectus, the "bet-to-bet" arrangement between the company and the preferred stockholders determines the lower limit of Xiaomi's valuation.

As of now, Xiaomi Group has completed A, B, C, D, E, and F rounds of preferred stock financing. There is an agreement between Xiaomi and the shareholders of the preferred stock. If the company does not complete a qualified listing before December 23, 2019, it needs to be redeemed.

From that date, the company's shareholders other than the F-Preference Shareholders, or most of the F-Preference Shareholders, have the right to require the company to repurchase in two ways - the investment cost plus annual compound interest 8% plus The dividends that have not yet been paid by Titan, or the fair value of the market at the time of redemption. The highest price will prevail.

The company’s charter also clearly stipulates “qualified listing”, limited to HKEx, NYSE, NASDAQ, or A, B, C, D, E, and F rounds that hold more than 50% of the shares of the company. Shareholders or other converted B-share holders agreed to exchanges, and require the company to reach a certain level of valuation at the time of listing.

After the first six rounds of financing were completed, the company’s shareholders increased to 71 seats. Among them, Class A ordinary shares accounted for 31.9706%, Class B ordinary shareholders accounted for 17.8666%, and the remaining six rounds of preferred shares accounted for 50.1628%.

Therefore, if the company fails to achieve a qualified listing within a limited time, the company is faced with the redemption of preferred stocks, which may cause greater risks to the company's operations and finances.

From January 1, 2018 to the time of the company's listing, the overall increase in the valuation of the company will result in a substantial increase in the fair value of the preferred shares, which will result in large fair value change losses in the current period. In April 2018, Xiaomi issued a total of 63.9596 million Class B ordinary shares to smartmobile holding limited controlled by Lei Jun. The equity incentives confirmed the payment of 9.83 billion yuan in shares. Based on the two major factors mentioned above, Xiaomi may expect the net profit of the financial statements for the year to be listed may still be negative.

Xiaomi did not announce in the "CDR Prospectus" that the specific amount of "pre-listing valuation reached a certain level" in the agreement reached with the preferred stockholders. Industry speculation is about 60 billion US dollars. Regardless of the specific amount, this also determines the lower limit of Xiaomi's valuation.

"Millet may grow into a good company, but it is not at this time worth 80 billion, 90 billion US dollars this price, it is hard to say." A senior fund investor told the First Financial reporter that will Xiaomi's hardware and software are separated to benchmark, according to the most ideal state, hardware benchmarking apple, software benchmarkingTencentUltimately, the market value can hardly reach the valuation level given by the current institutions.

August 2010, Millet A round of financing, additional price of 0.1 US dollars / share; September 2011, millet C round of financing, 2.0942 US dollars / share; in June 2012, D round of financing, 8.1882 US dollars / share; December 2014 , F round of financing, additional issue price of $20.1682 per share.

Can that price be used as a reference?

“Actually speaking, we should not be affected by the previous rounds of financing valuations. The past financing has nothing to do with how much I want to give him now. If it is related to the past financing, it is very simple, I will find For a few investors, I've gotten a round every six months, the valuation has doubled, and I've come back to the market. Then you're pricing according to my financing in the last six months? That's not going to work.” Regardless of whether you invest in the primary market or the secondary market, in the future, equity investment funds will need to be used to assess the level of pricing. Simply looking at the PE (P/E ratio) method needs to be changed.

Blind vote and blind selection of placing fund

As the first single application for the issuance of CDR, Xiaomi has also become the main evaluation target for investors participating in strategic placement funds.

However, it is worth noting that because the regulator will strictly control the number and pace of CDR issuance this year, what companies will be issued next is still uncertain. At what price these companies will be issued, it is uncertain.

In other words, when investing in a strategic placement fund, investors cannot know the future direction of the fund, nor do they know the future fund's participation in CDR prices.

The draft of the "Measures for the Issuance, Underwriting, and Management of Securities Offerings" issued in May this year stipulates that in the case of CDRs issued in China, shares may be placed to strategic investors. Zheng Jisha, an analyst at China Merchants Securities, explained that the strategic allotment is similar to the “basestone” concept of “corner investors” in the Hong Kong market, and strategic investors are not involved in the offline inquiry and sales restriction period in exchange for priority allocation rights.

Six strategic placement funds were approved on June 6th and sales to individual investors began on June 11. According to the initial design, the maximum size of each strategic placement fund was 50 billion, a total of 300 billion.

According to the requirements of the China Securities Regulatory Commission, CDR issuers and their lead underwriters will design distribution plans based on their respective circumstances, and establish incentive and restraint mechanisms for institutional investors to participate in the inquiry, so as to promote the active participation and prudent pricing of professional institutional investors.

However, with funds, brokerage firms, and banks fully selling, coupled with "national strategies" and "policy dividends," coupled with attractive propaganda such as "unprecedented" and "limited time limit," investors are "half doubtful." Participation in the enthusiasm.

According to the agency's general forecast, there will be two types of related pilot targets in the future. One is red-chip companies that have been listed overseas and meet the market demand of 200 billion yuan, including Baidu, Tencent, Ali, NetEase and Jingdong; Companies that are listed overseas and meet a market value of RMB 20 billion with a revenue of RMB 3 billion, including Huawei, Didi,Ali CloudUnited States Mission, today's headlines, rookie network, DJI, reputation, hungry, Weimar Automobile, Weilai Automobile, Beijing Automotive New Energy, etc.

"The strategic placement fund is an innovation that gives retail investors the opportunity to participate in sharing the growth and benefits of technological innovation companies. However, similar cases have not been seen in the areas of ADR and HDR." The aforementioned fund person told reporters that investment issues should be invested The way to find out the answer is ultimately a matter of price.

There are three kinds of analysis in the industry for how CDRs are priced. One view is that the regulator will conduct a window guidance and guide the company to issue a reference 23 times P/E to issue the CDR. The reason is that the A-share market has a new culture and will continue to stir up after the IPO. If investors can participate in the secondary market, if the price-earnings ratio is not limited, the CDR premium will be significantly higher than the positive stock. The other view is that CDR is essentially a depositary receipt for basic securities listed in different places. It only needs to convert according to the price of the underlying stock.

There is also a view that CDRs should be issued within China after a slight discount on the basis of the underlying stock price. The reason is that companies such as BAT have been listed overseas for many years and the market pricing has been tested over a long period of time and is a relatively reasonable valuation. On this basis, it is more reasonable to hit a little discount issue.

Zheng Jisha also believes that the price of the subject CDR with international pricing will be basically the same as the existing overseas price or slightly discounted.

However, in the view of the aforementioned fund person, even if it is issued at a discount, it is difficult for the domestic investors to assess the risk. "I think once CDR is listed on the A-shares, it will definitely rise one thing, or even a higher premium than US stocks. But if you ask me if I want to buy a placing fund, I can only say that I will consider it." Said that for different targets, the level of pricing, risk differences are very large, such as Alibaba discount 10% discount, may be willing to buy a lot of people, but if it is Baidu, it may be another problem. The key point is how the placement fund will invest in various CDRs, which investors cannot confirm at present.

In his view, US stocks may now be standing at the tail of the 9-year-old cattle, and the strategic allotment fund will be closed for three years. Even if the current discount price is issued, whether or not the stock price will fall sharply after three years is currently unclear.

"Of course, funds and companies will play games during the inquiry stage and will also take into account the possibility of future declines, but prices are still difficult to reflect risks." The source said that the technical difficulty of pricing out, there are more important factors - - Shareholders of US stocks will be able to check and balance the possible dilution of their CDR interests, which cannot be controlled by regulatory intervention.

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