Leading Chinese Smartphone Invites Regulatory Scrutiny In India, Shares Drop In Hong Kong

Xiaomi Corp XIACY XIACF shares lost steam in Hong Kong after India’s Enforcement Directorate alleged the second-largest smartphone vendor of “illegal remittances” and seized ~$730 million, the Financial Times reports.
India’s anti-money laundering and foreign exchange crime division alleged Xiaomi’s Indian subsidiary of sending $55.51 billion ($725 million) of foreign currency payments disguised as royalties “on the instructions of their Chinese parent group.”
The smartphone maker allegedly created a “documentary facade” among “group entities” to send the funds overseas, providing misleading information to the banks while remitting the money abroad.”
Xiaomi, holding the most significant share of India’s smartphone market, argued the payments under scrutiny were “legit and truthful.”
“These royalty payments that Xiaomi India made were for the in-licensed technologies and IPs used in our Indian version products,” Xiaomi defended. “It is a legitimate commercial arrangement.”
Xiaomi acknowledged its commitment to working closely with government authorities to clarify any misunderstandings.
“The China market is down for quarter one and quarter two after the lockdowns, and the demand side is very dim now,” an analyst acknowledged. “India is the second-biggest market for Xiaomi [after China], so it’s very crucial.”
Price Action: Xiaomi shares closed lower by 4.43% at HKD11.66 on the Hong Kong stock exchange Tuesday.