July 28, 2017 7:16 pm JST

Xiaomi bags $1bn loan to fund global offensive

Chinese smartphone maker to open 100 stores in India over two years

ROSEMARY MARANDI, Nikkei staff writer

MUMBAI -- Chinese smartphone maker Xiaomi has secured a three-year, $1 billion loan from a consortium of international lenders -- money it plans to use to expand its global footprint.

Deutsche Bank and Morgan Stanley served as joint coordinators for the syndicated loan, which involves 18 banks across Europe, the Middle East, India, China, Hong Kong and Taiwan, the company said in a statement on Friday.

Bank of China (Hong Kong), Deutsche Bank and Wing Lung Bank were the mandated lead arrangers and bookrunners, the company said.

Xiaomi founder Lei Jun, who serves as chairman and chief executive, said the loan would fuel two key strategies for growth: "new retail," which refers to the integration of online and offline retail, and globalization.

"The global syndicate of top-tier banks is a strong endorsement of Xiaomi by the international capital markets," said Shou Zi Chew, Xiaomi's chief financial officer.

This round of borrowing follows a loan Xiaomi took out in 2015 for a similar amount.

Retail ambitions

Xiaomi has been on the march of late, after taking its share of blows from rivals such as Huawei Technologies, Vivo and Oppo.

The company said it shipped 23.16 million smartphones in the second quarter of 2017, a 70% rise over the previous quarter. It also fine-tuned its strategy to include a bigger retail presence, centered on its Mi Home stores. So far, Xiaomi has 149 of the stores.

A key focus is India -- seen as a critical market for growth. Xiaomi has plans for 100 Mi Homes over two years. The goal is to sell 25% of products over the counter this year, and to eventually strike an even offline-online sales balance, according to Manu Kumar Jain, Xiaomi's managing director in India.

On May 20, Xiaomi opened its first Indian outlet in Bangalore, and more will follow in Chennai, Delhi and Mumbai.

Xiaomi has invested around $500 million in India so far, and is open to investing as much again if the business requires it. It derives confidence from improving perceptions of Chinese products, and Jain believes this has everything to do with innovation.

In July, Xiaomi unveiled the Mi 5X, a competitively priced dual-camera smartphone. Earlier this year, the company signed a multiyear patent agreement with Nokia, which included Xiaomi's acquisition of patent assets from Nokia.

"Basic" boom

Xiaomi currently does business in over 40 countries and regions. Its international push is aimed at taking advantage of demand for "basic" smartphones, especially in emerging economies.

Research firm Gartner reckons that overall smartphone shipments will grow 5% in 2017, reaching nearly 1.6 billion units, while end-user spending continues to shift from low-cost "utility" phones toward higher-priced "basic" and "premium" smartphones. The "basic" smartphone market is expected to amount to 686 million shipments in 2017, up 6.8% from 2016.

"Consumers have already accepted the greater value attained from the better capabilities of basic smartphones, compared to low-end utility devices," said Roberta Cozza, research director at Gartner. "Therefore, the average selling prices of mid- and high-range smartphones continue to increase."

Cozza sees Chinese manufacturers driving the market's evolution. "The Chinese players currently pushing basic smartphones with premium feel and features into the market will continue to strengthen the shift away from low-end utility phones toward basic smartphones."

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