SenseTime gets green light from Hong Kong exchange to proceed with US$2 billion IPO, sources say

China’s largest artificial intelligence company gets approval from Hong Kong stock exchange’s listing committee for share sale, sources say
SenseTime’s flotation could be the first tech IPO that raises over US$1 billion since Li Auto’s deal in August

IPO

Georgina Leein Hong Kong,Iris Ouyangin ShenzhenandEnoch Yiuin Hong Kong

Published: 9:52pm, 19 Nov 2021

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SenseTime has got the green light from the Hong Kong stock exchange to proceed with its flotation, according to people familiar with the transaction, taking the largest artificial intelligence (AI) company in China a step closer to its US$2 billion initial public offering.

A launch of the deal before the year-end would put SenseTime – backed by SoftBank Group, Temasek Holdings and Alibaba Group Holding, the owner of the Post – in potential competition with another mega-sized issuer, China Tourism Group Duty Free, for investors’ capital.

The world’s largest travel retailer has also won the go-ahead this week from the Hong Kong bourse to proceed with its secondary listing and share sale, the Post has reported, citing a source familiar with the transaction. The Shanghai-listed firm could be targeting up to US$5 billion, according to previous media reports.

The Post has previously reported that SenseTime is targeting at least US$2 billion, but the company has declined to comment on the deal. China International Capital Corporation (CICC), Haitong and HSBC are serving as underwriters on the offering.

These mega IPO deals would give the Hong Kong stock exchange a shot in the arm. The city has been devoid of new issuances of over US$1 billion for much of the second half since Li Auto raised about US$1.7 billion in August, data from Refinitiv shows. Fundraising on the Hong Kong market in the third quarter stood as the lowest since the first quarter of last year when Covid-19 impacted the market, although it still ranked third after Nasdaq and New York for the 10 months to October.

In its latest bid to promote the IPO market in the city, Hong Kong Exchanges and Clearing from January will substantially lower the capitalisation qualification to enable smaller companies to raise funds through secondary listings, according to an announcement by the exchange on Friday night.

The exchange decided to go ahead with the reform, first proposed in March, after it gained wide support from the market. The new rule will allow companies with a minimum valuation of HK$3 billion (US$386 million) after five years of listing in the United States or London to qualify for secondary listings in Hong Kong, a drastic reduction from the current minimum threshold of HK$40 billion.

It will also allow US-listed companies which are not in innovative sectors to apply.

“This new framework will support a whole new generation of international and regional issuers seeking a listing in Hong Kong,” said HKEX head of listing, Bonnie Chan. Founded by a group of professors at the Chinese University of Hong Kong (CUHK) in 2014, SenseTime develops AI technology used in a variety of areas, including autonomous driving, augmented reality, facial recognition and medical imaging. Its technology is being used in smart city and smart auto initiatives in China.

As of June 30, the company’s software platforms were used by more than 2,400 customers, including more than 250 Fortune 500 and other publicly listed companies, according to the filing. The company also has more than 8,000 AI patents and patent applications.

The stock sale by SenseTime has also come amid an ongoing consultation by the country’s top cybersecurity watchdog on its plan to impose a cybersecurity review on mainland companies seeking a Hong Kong IPO on national security grounds.

The “Network Data Security Management Regulations” draft regulation will mandate “data-processing entities seeking a listing in Hong Kong that will influence or may influence national security” to apply for a cybersecurity check. The consultation will end on December 13. An IPO before the end of the year would also put SenseTime ahead of the implementation of the latest proposed rule.

But there are other privacy and data protection rules that have already become effective which the company has cited as risk factors in its draft prospectus. These include the Data Security Law, and the Personal Information Protection Law.

“Failure to comply with the cybersecurity and data privacy requirements in a timely manner, or at all, may subject us to government enforcement actions and investigations, fines, penalties, suspension of our non-compliant operations, among other sanctions. The company’s principal place of business in China is in Shanghai and Hong Kong, where it maintains head offices in both cities.”

Wang Xiaogang, the company’s co-founder and managing director of its research laboratory, said Hong Kong remains an important place for him and the company.

“SenseTime is a unicorn that grew in Hong Kong. Hong Kong [government] gave us a lot of support and we have got a lot of support from the Chinese University of Hong Kong,” Wang said in a recent interview with South China Morning Post.

For the first half of this year, SenseTime reported a net loss of 3.7 billion yuan, following net losses in all previous three years of 2018 to 2020.

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