SenseTime, a China-based artificial intelligence technology provider that counts corporates Alibaba, Qualcomm, SoftBank, Suning and Dalian Wanda as investors, is seeking up to $767m in its initial public offering, Reuters reported today.
The figure comes from a term sheet seen by Reuters that states SenseTime plans to issue 1.5 billion shares on the Hong Kong Stock Exchange priced between HK$3.85 and HK$3.99 ($0.49 to $0.51).
The company has signed up eight cornerstone investors who have subscribed for a total of about $450m of the shares in the offering, which would value it at up to $17bn if it prices them at the top of the range.
SenseTime, which is headquartered in Hong Kong, produces AI chips, sensors and software for use in image recognition, internet-of-things, autonomous driving and metaverse products as well as the healthcare and education sectors.
The range represents a downgrade from the reported $2bn SenseTime had been seeking. The offering may serve as a bellwether for China’s IPO environment following regulatory issues which have hampered flotations over the past year or so.
Ant Group, the financial services affiliate of e-commerce group Alibaba, served as the first warning sign of a change in attitude towards the country’s digital technology space, when its IPO was cancelled in November 2020 on just two days notice due to its failure to meet newly introduced rules governing online loans.
The move was thought by many onlookers to be related to comments by Alibaba founder Jack Ma days earlier in a speech where he criticised China’s banking regulatory environment, and he subsequently disappeared from the public eye, increasing the disquiet felt by some over the decision.
China has since introduced a raft of moves impacting the business of digital-focused companies, including barring foreign tutors from the country’s online education platforms, capping the amounts online finance providers can lend and putting limits on the amount of time under-18s can spend playing online games.
However, the most fervent action may have been directed towards the public markets space. The government suspended 40 IPOs on the Shanghai and Shenzhen stock exchanges in August, and Bloomberg reported last week it plans to close the loophole enabling domestic companies to list on foreign markets through variable interest entities (VIEs).
The VIE structure allows Chinese companies to float outside the country despite laws prohibiting foreign ownership, and the news comes as one of China’s largest tech companies, on-demand ride provider Didi, revealed it is set to delist from the New York Stock Exchange in favour of a Hong Kong listing.
Didi floated in a $4.4bn offering in June this year but the news caused its shares to fall further after a turbulent few months. They are trading at $6.39 at time of writing, less than half its IPO price of $14. Alibaba and Baidu’s share price has also more than halved this year while Tencent’s is not doing much better.
All of this puts big question marks on prospective returns for corporate venturers who have pumped big money into China-based companies in recent years. SenseTime had raised a total of $2.6bn from investors including Alibaba, SoftBank, Qualcomm, Dalian Wanda and Suning as of 2018.
TikTok owner ByteDance is among the companies which have shelved prospective offerings but perhaps the issues for SenseTime can be seen most clearly in those of its biggest rival, Megvii, which filed for its own IPO on Shanghai Stock Exchange’s Star Market in March but which is still yet to go public.
Interestingly, the data has so far shown no slowdown in venture funding – China-based companies pulled in significantly more investment in the first nine months of 2021 than in the previous year. But companies raise money from investors because of the prospect of a profitable exit.
If the public market routes are effectively blocked off and the fines recently levelled on domestic companies concerning wrongly reported acquisition deals prove a sign of regulatory hostility to M&A activity, the question becomes when that exit can arrive, and it may be we begin seeing a drop off in funding when the next quarter of data comes through.
