INSUBCONTINENT EXCLUSIVE:
The weekend provided no rest to news-wary reporters, with major announcements coming from Xiaomi, SoftBank and the Chinese government the
past few days that will continue to change the global tech landscape.
Xiaomi Chinese Depository Receipts
One of the most important yet
underreported stories of 2018 has been the development of Chinese Depository Receipts (known as CDRs)
I wrote a comprehensive primer on the investment mechanism a few weeks ago, but the summary is that CDRs will give mainland Chinese
investors access to overseas-listed stocks that set up the right custodian accounts
Due to domestic capital controls and relatively weak stock exchange rules in China, many Chinese tech giants are listed on overseas stock
exchanges in New York and Hong Kong.
Beijing-based Xiaomi, which produces a line of phones and offers mobile software services, is launching
one of the most anticipated IPOs of the year, with a valuation expected to top tens of billions of dollars
In its official filing, the company targeted a fundraise of $10 billion
While Xiaomi is a sterling example of the potential success of Chinese entrepreneurs, local retail buyers would likely have had no access to
buy the stock, which will be listed in Hong Kong.
Fiona Lau and Julie Zhu at Reuters are now reporting that Xiaomi could be one of the first
companies to take advantage of the new CDR mechanism, potentially reserving 30 percent of its new issue for CDR buyers
That would be about $3 billion if the assumptions of the fundraise play out.
If the CDR mechanism works as expected, Chinese companies and
potentially many others could suddenly tap a vast new pool of capital, either in the IPO process or more generally
That could push valuations for many of these issues higher than they might otherwise go, since Chinese mainland investors have limited
ability to invest in overseas stocks due to capital controls
A valuation that might cause a New York-based money manager to flee might be more than palatable to a Chinese investor.
While Chinese tech
giants are likely to quickly offer CDR options to take advantage of their local brand power and increase upward pressure on their stock
prices, the bigger question in my mind is how long it will take overseas companies to offer similar measures and get access to this capital
While companies like Facebook and Google are blocked or mostly blocked from mainland China, other companies like Apple have strong brand
presence in the country, and could theoretically offer a CDR as it strives for a $1 trillion valuation
There are huge legal and policy roadblocks to overcome of course, but such a debut would be a major milestone in China financial
development.
SoftBank executive changes
Japan SoftBank Group, which owns a set of major tech and finance companies, announced a new group
of senior execs late on Friday that sets up something of a leadership contest to succeed the group founder, Masayoshi Son.
Several years
ago, Son had indicated that Nikesh Arora, who had spent a decade at Google and eventually rose to be the company chief business officer,
Arora became president and chief operating officer of SoftBank, but would last less than two years before heading out from the role
As a sort of coda to that chapter, we learned late last week that Arora has joined Palo Alto Networks as its CEO.
Now, SoftBank has
announced that three people will take leadership roles in the company, and all three will join its board of directors
Rajeev Misra, who runs the $100 billion SoftBank Vision Fund, will become an executive vice president (EVP) while maintaining his duties to
the fund.
Katsunori Sago, who until recently was the chief investment officer of Japan Post, Japan largest savings bank with a $1.9 trillion
portfolio, will join SoftBank as an EVP and chief strategy officer
Sago had been rumored to be considering leaving Japan Post just a few weeks ago
Finally, former Sprint CEO Marcelo Claure was named an EVP and SoftBank new chief operating officer
Claure was elevated to executive chairman of Sprint last month, while stepping down as CEO.
Each of the three are positioned around the key
SoftBank core business remains telecom, on which Claure will presumably spend significant time
The group financial interests, which includes a 100 percent stake in Fortress Investment Group, will likely get significant attention from
And the SoftBank Vision Fund, which has received splashy headlines with its massive investments in global unicorn startups, is obviously a
key future pillar of the company, giving Misra a powerful perch in the group.
Masayoshi Son is 60 years old today
While retirement seems to be the least likely course of action for the energetic entrepreneur, clearly he is starting to think through
succession in a more robust way than he did before with Arora
That should make SoftBank investors far more content, and also provide a little bit of a competitive dynamic at the top of the organization
to drive the group results in the years to come.
China initiates investigation into Samsung and other chip companies
The chip wars between
China and the rest of the world continue to heat up
Now, it looks like Samsung, the world largest chipmaker, is in the crosshairs of Beijing,according to a Wall Street Journal report by Yoko
In addition to Samsung, Micron and SK Hynix were also ensnared in the investigation.
China has made building a strong indigenous chip
industry a core pillar of its economic development strategy
In addition to a comprehensive plan known as Made in China 2025, the country has also been attempting to put together the world largest
semiconductor venture capital investment fund, which in aggregate could have tens of billions of dollars in capital at its disposal.
The
investigations against Samsung and the two chipmakers comes at the same time that China has also once again delayed the close of Qualcomm
acquisition of NXP Semiconductors
Qualcomm has been waiting for months to get Beijing approval on that deal, which would provide the company a fresh source of revenue and a
renewed product mix in strategic areas like automotive.
The use of economic investigations to help and hurt Chinese companies and their
competitors is starting to become a mainstay
The United States used the negative conclusions of its investigation into Chinese telecommunications company ZTE in order to cut off its
export licenses, practically killing the company
While the United States has now started to walk back that threat by floating the option of a large fine, it is clear that these sorts of
tit-for-tat investigations are going to continue into the future.
