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SenseTime surveillance software identifying details about people and vehicles runs as a demonstration at the company’s office in Beijing on, October 11, 2017. Photo: Reuters

SenseTime postpones US$768 million IPO in Hong Kong after US blacklists AI firm on human rights grounds

  • China’s largest AI firm said it would postpone its Hong Kong IPO after the US barred American investors from owning shares in the firm
  • Washington blacklisted SenseTime over alleged human rights abuses in Xinjiang, which the AI firm called ‘unfounded,’ based on a fundamental misperception of the company
SenseTime
SenseTime Group halted its US$768 million initial public offering (IPO) in Hong Kong, pulling the plug for now on the city’s biggest stock sale since September, after the United States placed China’s largest artificial intelligence (AI) firm on an investment blacklist on human rights grounds.

The company will publish a supplemental prospectus with amendments and an updated schedule, and refund all the IPO applications made by investors without the associated interest, SenseTime said.

SenseTime “remains committed to completing the global offering and listing soon,” the company said, without elaborating. Spokespeople at SenseTime declined to comment. Joint sponsors of the deal including CICC, Haitong International and HSBC were not immediately available for comment.

The postponement made SenseTime, founded by a group of Chinese University of Hong Kong (CUHK) professors, the biggest corporate casualty yet of the Uyghur Forced Labor Prevention Act, which was passed last week in the US House of Representatives 428 votes to 1. The act contains a “rebuttable presumption” clause that assumes all goods coming from western China’s Xinjiang region are made with forced labour - and thus banned - unless the commissioner of US Customs and Border Protection gives an exception.

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Two days after the law passed, the US Treasury Department put SenseTime on its sanctions list, which would bar American investors from holding stocks in the company.

On Saturday, SenseTime rejected US accusations that it aided human rights abuses in Xinjiang, calling them “unfounded” accusations that reflected a “fundamental misperception” of the company.
“We strongly oppose the designation and accusations that have been made in connection with it,” Hong Kong’s largest technology unicorn said. “We regret to having been caught in the middle of geopolitical tensions.”

The sanctions list, announced on the day when SenseTime was supposed to price its Hong Kong IPO, made it impossible for the company to press ahead with its fundraising, which had already been slashed by almost two thirds to HK$5.99 billion (US$768 million).

The company was selling 1.5 billion shares at between HK$3.85 and HK$3.99 each according to its prospectus.

SenseTime can revive the IPO quickly within the six-month window of its current listing approval, provided it comes clean to investors on the impact of the US sanction, according to two regulatory sources. They pointed out that as the listing approval remains valid, the company does not have to apply again.

Several major brokers in Hong Kong, including Bright Smart Securities, Futu Securities and Interactive Brokers, said they would waive their fees and interest payments for clients who subscribed to the SenseTime IPO using margin loans.

“The delay to one IPO will not have a market-wide impact, but it will obviously hurt brokers’ businesses due to losses from interest and commission income,” said Robert Lee, chairman of the Hong Kong Securities Association, the local guild for the city’s stockbrokers.

02:23

China passes anti-sanctions law to counter punitive action by foreign countries

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Several US-based institutions were among the pre-IPO investors that had backed SenseTime, a world leader in artificial intelligence (AI), including the areas of facial recognition, object detection, optical character recognition, medical image analysis, remote sensing and autonomous driving. Fidelity International and the semiconductor chip maker Qualcomm each have less than 1 per cent stake in the Hong Kong company, according to SenseTime’s prospectus.

These pre-IPO investors hold redemption rights which they can exercise if a listing does not happen by a certain predetermined date, according to the prospectus. American companies are barred from investing in businesses on US blacklists, according to an executive order signed by then-US President Donald Trump last year.

Multiple new regulations this year on privacy and cybersecurity have clouded the country’s technology sector, pushing companies to reconsider overseas listings. Last month, a draft regulation from the Cyberspace Administration of China specified for the first time that certain companies seeking listings in Hong Kong would also be subject to a cybersecurity review.

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The Biden administration also imposed economic sanctions on two senior government officials in Xinjiang for alleged human rights abuses, the Treasury Department announced on Friday.
The sanctions add to the administration’s continuous moves to crack down on Chinese corporations and officials seen as violating the rights of Uygurs and other ethnic minority groups in Xinjiang, further entrenching Biden’s hardline stance on Beijing almost a year into his presidency.

“Treasury is using its tools to expose and hold accountable perpetrators of serious human rights abuse,” Wally Adeyemo, deputy secretary of the Treasury, said on Friday, identifying SenseTime as being responsible for “human rights abuse enabled by the malign use of technology”.

07:30

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