Xiaomi announces $1.5 billion share buyback, its biggest to date

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Xiaomi on Tuesday announced that it will buy back up to HK$12 billion (over $1.5 billion) worth of stock in its biggest equity repurchase to date. The shares of the Chinese smartphone maker rose nearly 7% post the announcement. Xiaomi, which listed its shares in July 2018, has lost nearly a third of its market value so far this year.

Just last week the company scrapped an already delayed plan to offer equity in China, a move aimed at attracting mainland investors hungry to buy into global companies. The company said then it had enough money and would focus on business development.

Shares of Xiaomi, which listed in Hong Kong last year, have lost nearly a third of their value this year and are at half their initial public offering price, hurt by the company’s sharply slowing growth and increased competition.

The stock has also been hit by losses at the Hong Kong stock market, which has plunged since massive anti-government protests started in the city in June. Companies on the city’s exchange have collectively bled $152 billion in value since June.

“I think it should give investors more confidence to buy the stock because it shows how confident management is in the sustainable cash-generating capabilities of the company,” said Morningstar analyst Dan Baker, referring to the buyback.

Baker said the plan to offer shares in the mainland was likely aimed at getting a higher valuation in the Chinese market than it was about raising funds. The buyback announcement shows the company has enough cash, he said.

Xiaomi had cash and cash equivalents of 34.9 billion yuan ($4.92 billion) as of June 30 and total borrowings of 13.8 billion yuan. The company generated positive cash flow of roughly 11 billion yuan in the June quarter.

“The board believes that a share repurchase in the present conditions will demonstrate the company’s confidence in its own business outlook and prospects,” Xiaomi said in a stock exchange filing.

Xiaomi’s current financial resources will enable it to implement the repurchase while maintaining a solid financial position, it said.

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