(Yicai Global) June 19 -- China's smartphone maker Xiaomi has asked the regulator to postpone its application for a Chinese depository receipt, or CDR, offering without giving a reason.

At the company's request, the China Securities Regulatory Commission, CSRC, has decided to cancel two share offering review meetings originally scheduled for today, the regulator said in a statement today.

According to the approval-based stock market administration system on the Chinese mainland, any company interested in an A-share IPO must get the approval from the CSRC share offering review committee first.

"After careful deliberation, Xiaomi has decided to proceed with the Hong Kong share issuance and the China Depository Receipt (CDR) plan in separate steps, and H shares will be issued first, which will be followed by the domestic CDR offering at an appropriate time," the CSRC announced.

The Commission respects Xiaomi's choice and has decided to cancel the offering review meetings and postpone processing the CDR application, it stated.

The firm echoed the statement in a microblogging Weibo post this morning, saying that it will implement the IPOs in Hong Kong and the Chinese mainland in separate phases.

The CSRC issued a document on June 7, pledging to provide favorable policies for Chinese tech firms that have already been or will be listed abroad, allowing them to float on the A-share market via a CDR issuance.

Xiaomi had already filed the H-share IPO application back then and submitted a CDR application to the CSRC shortly after the introduction of the new policy, giving rise to expectations that it will become the first tech unicorn to be ever listed on the A-share market.

Possible Reasons

There might be various reasons behind Xiaomi's decision to withdraw the CDR application on the day of regulatory review.

The deal is the first share offering under the CDR pilot program, but the company is still facing considerable uncertainty about CDR pricing. The A-share market has a long tradition of speculating on new stocks, and Xiaomi is widely seen as a "star innovative firm" and "unicorn," so the regulator is wary about listing it at an inflated price, which might lead to long-term collapse of price afterward.

This will affect Xiaomi's performance on the capital market as well as the overall acceptance of "new economy" companies among investors. This factor is something financial regulators take into account very carefully.

"As far as we know, feedback from some global investors suggest that a fair valuation of Xiaomi should be below USD40 billion," an analyst at a leading investment bank told Yicai Global.

Xiaomi has got interested subscribers for about 60 percent of its H shares, and most of them are hedge funds, the analyst claimed. The investors believe that the A-share CDR price will boost Xiaomi's H-share price, even if the CDR listing comes just one day before the H-share IPO.

Xiaomi might be on track to grow into a great company, but it is questionable if it is really worth USD80 billion or USD90 billion right now, said a fund investor Yicai Global interviewed earlier.

In fact, the pullout from the CDR deal came as a relief for many people. First, it can be difficult for investors to decide whether Xiaomi is a hardware manufacturer or an internet technology enterprise, several market insiders told Yicai Global.

Second, the pace of the reform for introducing new economy businesses to China's capital market might have been "too fast," and it will take some time before investors can adapt themselves to the changes. The decision to put the deal on hold for now may prove a good thing, they added.

The CSRC announced on June 15 its decision to review Xiaomi's CDR application today.

It held a meeting on June 14 to train professional institutional investors inquiring about the CDR price, requiring them to price their offers based on thorough analysis of the target company. Furthermore, they must submit a target company research report to the regulator via the lead underwriter, and all the institutional investors will be subject to close scrutiny by the CSRC and the Securities Association of China, SAC, a self-regulatory organization for the sector.

Earlier on, the CSRC published a 20,000-character first feedback report on the Xiaomi CDR application, containing opinions issued by reviewers on valuation and pricing and other important matters. Xiaomi's reply to the feedback has not been made public to date.

Xiaomi is an internet company specializing in cellphones, smart devices and Internet of Things platforms, and it derives most of its revenues from selling smartphones, IOT and everyday consumer electronic products and internet services, it said in the Hong Kong IPO prospectus. Sales models at the company include online and offline sales, direct selling and distribution, and internet services mainly include advertising and marketing and games.

According to the prospectus, the firm was priced at USD0.1 per share for the A-round financing in August 2010, which went up to USD2.094 per share for C-round funding in September 2011, USD8.188 for D-round in June 2012 and hit USD20.168 for F-round in December 2014.

Editor: Mevlut Katik