Zhihu loses one fifth of market value as SEC delisting pressure mars Hong Kong listing debut

Stock slumps as much as 27 per cent on first day of trading in Hong Kong, a day after the SEC added the firm and 16 others to its watchlist for delisting
Company completed its Hong Kong IPO with early investors selling 29.9 million shares including over-allotment at HK$32.06 each

Hong Kong Stock Exchange

Ann Caoin Shanghai

Published: 2:48pm, 22 Apr 2022

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Zhihu shares plunged as much as 27 per cent on the first day of trading, a case of jumping out of the frying pan into the fire, as US-listed Chinese firms continue to take a beating following their listings in Hong Kong amid a tech sector crackdown at home.

China’s biggest knowledge-sharing platform operator, akin to the question-and-answer site run by California-based Quora, fell to as low as HK$23.45 from its public offering price of HK$32.06, erasing HK$2.64 billion (US$337 million) from its market capitalisation.

The stock closed 24 per cent lower at HK$24.50 on Friday, ranking as the third-worst debut among 13 in Hong Kong this year. Jinmao Property Services fell 29 per cent while AInnovation Tech declined 26 per cent on their first day of trading.

Zhihu is facing risks both inside and outside the company, including lower profitability, the risk of losing users as well as pressure from the antitrust crackdown and tightening online content regulation in China, Essence Securities said in a research note.

Hong Kong is seeking to profit from providing a new home for US-listed Chinese companies. Photo: AFP

Other US-listed companies like Li Auto, NIO and XPeng have also limped since making their Hong Kong market bow through primary or secondary offerings, having lost between 13 and 41 per cent. Investors are concerned delisting from US exchanges will deprive them of a deep pool of capital for expansion.

The US Securities and Exchange Commission on Thursday added Zhihu and 16 other Chinese companies to a watchlist under the Holding Foreign Companies Accountable Act, legislation to make access to audit papers of foreign companies listed on US exchange compulsory.

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Beijing-based Zhihu was founded by CEO Zhou Yuan and Huang Jixin in 2011. Several early investors including venture capital funds sold 29.9 million existing shares, including over-allotment, to new investors to pocket HK$913 million in net proceeds.

The firm recorded a 119 per cent jump in revenue to 2.96 billion yuan in 2021. However, its net loss doubled to 1.3 billion yuan.

A Class A share in Hong Kong represents two American depositary shares. The US security, which rose 0.6 per cent to US$1.66 in New York on Thursday, has declined about 82 per cent since the company went public in March last year.

Additional reporting by Cheryl Heng