Chinese smartphone maker Xiaomi was handpicked by the government to conduct an initial public offering (IPO) on a mainland exchange. The IPO was planned to include a listing in Hong Kong and a listing for Chinese Depositary Receipts (CDRs) on the Shanghai exchange. The company announced Monday that the Shanghai piece of the IPO is being postponed.

Selling CDRs would have enabled mainland investors to buy a stake in Xiaomi, something they would not have been able to do if the company had listed its shares in New York or any place outside China. Chinese law bars mainland residents from moving money offshore. The government intends for Chinese companies eventually to repatriate the equity currently traded on foreign exchanges. That’s why the delay in Xiaomi’s offering is noteworthy.

CDRs are modeled on American depositary receipts (ADRs), and mainland Chinese residents would have been able to buy and trade CDRs directly on the Shanghai exchange. Most Chinese firms listed on U.S. exchanges trade either ADRs or American depositary shares (ADSs).

Originally the two offerings were expected to raise $10 billion at a valuation of Xiaomi of $100 billion, although recent discussions with potential investors had lowered the valuation to around $60 billion, according to The Wall Street Journal.

The company said it has asked China’s Securities Regulatory Commission (SRC) to delay a review its proposal to sell CDRs to mainland investors. The commission has agreed to the delay.

According to a report in the South China Morning Post, the government’s CDR program “had been rushed through, and questions such as convertibility, trading channels and accounting standards remain unanswered.” Another odd twist to the dual offerings is that the Shanghai offering of CDRs was planned to precede the share offering in Hong Kong. The usual order of operations is the share offering goes out first and then the receipts’ offerings are floated.

A financial consultant told the Post:

Xiaomi’s case is the latest example of how the old way of regulation can be a big stumbling block to the implementation of reforms. The regulators are giving priority to market stability, rather than new measures to further liberalise the market. … It does not make much economic sense to float the CDRs ahead of the basic share issue [in Hong Kong]. It is more of a political concern, as Beijing wants the scheme to be a success.

The Post also noted that the SRC Tuesday said that Xiaomi will first float its shares in Hong Kong “and then find a proper timing to float CDRs.” Done in that order, the Hong Kong IPO sets a value on the stock before Xiaomi issues CDRs on the mainland for retail investors to purchase, reducing the chance that small investors will get surprised when large investors put a price on Xiaomi stock.

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