Xiaomi-linked companies halt IPOs after Chinese regulator scrutiny

Xiaomi-linked companies have faced increased scrutiny from China’s regulators, with some pausing planned initial public offerings after being questioned about their close relationship with the smartphone giant.

Smart mattress maker 8H, intelligent lighting company Yeelight and commercial operating system maker Shanghai Sunmi Technology have shelved IPO plans in recent months, according to documents and Chinese media reports.

The moves have come after they were questioned by Chinese regulators about being part of Xiaomi’s “ecosystem companies”, a vast array of groups in which the smartphone seller has either directly invested or made commercial arrangements.

The strategy has been an integral part of Xiaomi’s business model. As of March, the company said it had invested in more than 400 companies worth Rmb59bn ($8.8bn), including smart vacuum company Roborock. Xiaomi’s net profit for last year, by comparison, was Rmb19.3bn.

Richard Kramer, a senior analyst at Arete Research, said: “Lei Jun [founder of Xiaomi] is running this vast . . . empire of small companies like a mini-Masa Son,” referring to the head of Japanese tech investor SoftBank.

The probes came as China’s regulators have cool on tech giants building vast investment portfolios as part of its broader anti-monopoly campaign, which has wiped billions off the value of the country’s biggest companies.

It also put Xiaomi’s business under further pressure, after the smartphone maker produced disappointing first-quarter earnings and hits regulatory hurdles in India, its second-biggest market.

The China Securities Regulatory Commission said in March there was no restriction on companies Xiaomi has invested in from conducting IPOs. But the scrutiny of linked companies has raised concerns the group has not escaped the anti-monopoly campaign that brought down Alibaba’s Jack Ma.

“Xiaomi owns several different investment vehicles . . . and the government is sensitive about disorderly expansion of capital,” one Xiaomi investor said.

Chengdu-based 8H proposed an IPO on the Shenzhen Stock Exchange in June last year, but since then, the company has faced two rounds of questions from the CSRC, according to company documents.

It answered the first round of questions 47 days after they were filed by the country’s top securities watchdog, but has not responded to the security regulator’s second round of queries from January 29 and its IPO is yet to go ahead.

The CSRC asked about the company’s reliance on Xiaomi and if 8H had preferential treatment in terms of selling and promoting its products via Xiaomi’s ecommerce sites.

Lei’s venture firm Shunwei Capital and Xiaomi-backed Tianjin Golden Rice Investment Limited Partnership own a combined 12 per cent stake in 8H, according to the prospectus, while Xiaomi is one of the company’s top five suppliers.

Lighting company Yeelight withdrew its application to list on Shanghai’s Star board last July after two rounds of inquiries from the Shanghai Stock Exchange that focused on how separate the company was from Xiaomi.

“Please clarify to what extent Xiaomi interferes in and controls the company’s technology, procurement, production, supply and sales,” the exchange said in one of its questions.

Yeelight’s president, Liu Daping, attributed the withdrawal of the IPO to “policy adjustments” and said he would attempt to revive the offering in the future.

Shanghai Sunmi Technology withdrew its application to list in February after receiving two rounds of questions from the Shanghai Stock Exchange.

8H did not respond to a request for comment. Sunmi said the IPO withdrawal was a “prudent decision based on the company’s latest development strategy”.

Xiaomi said each of the companies was independent. “It is not possible for us to understand if [or] why they are able [to or] unable to IPO,” the company said. “Apart from having investment from Xiaomi and launching some . . . products, they develop their business independently.”