AI firm Yitu considers shifting initial public offering to Hong Kong as fundraising stalls on Shanghai Star market

The AI firm could seek a valuation of about US$4 billion in the Hong Kong share sale, according to people familiar with the matter

Yitu, whose application for a Star board IPO was withdrawn last month, could file for a listing as soon as later this year

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Diagnosis system powered by artificial intelligence (AI) on display during the World Artificial Intelligence Conference in Shanghai on September 17, 2018. Photo: Zigor Aldama/Post Magazine

Published: 11:42am, 19 Aug 2021Updated: 11:41am, 19 Aug 2021

Chinese artificial intelligence (AI) company Yitu Technology is considering an initial public offering (IPO) in Hong Kong after a tightening regulatory scrutiny stalled an earlier attempt to list in Shanghai, people familiar with the matter said.

The AI firm could seek a valuation of about US$4 billion in the Hong Kong share sale, according to the people, asking not to be named discussing private matters. Yitu, whose application for a Star board IPO was withdrawn last month when regulators failed to give their approval after a lengthy review process, could file for a listing as soon as later this year, one of the people said.

Yitu, which had sought to raise 7.51 billion yuan (US$1.2 billion) in its 2020 IPO bid, hasn’t yet ruled out trying to seek a Star board listing, though the current regulatory environment made the option unlikely, said the people.

China’s cash-starved AI firms, often burdened with heavy research and development expenses, are turning to public markets for funding even as Beijing’s scrutiny over tech IPOs increases. Yitu’s rival SenseTime Group plans to file for a US$2-billion IPO in Hong Kong as soon as the coming weeks, Bloomberg News reported on Tuesday, while another competitor Megvii Technology, backed by Alibaba Group Holding, in March applied for a Star board listing. Another player Beijing Fourth Paradigm Technology this month filed for a listing in Hong Kong.

Founded in 2012 by Leo Zhu, a Massachusetts Institute of Technology fellow, and Lin Chenxi, who helped Alibaba build its cloud unit, Yitu has attracted a swathe of investors from Hillhouse Capital to Sequoia Capital. The Shanghai-based company has rapidly expanded from facial recognition technology to AI chip development – areas that fall squarely within President Xi Jinping’s priorities for economic development and tech self-sufficiency.

But profitability concerns ahead of a potential listing led Yitu to reduce headcount and sell some of its health care-related businesses to a competitor earlier this year, according to one of the people. While the spin-off of the unit will have limited impact on Yitu’s IPO plan, the management has been strengthening its chip and auto businesses in a bid to justify the target valuation, said another person. A representative for the company didn’t respond to emailed requests for comment.