A look at China’s Kunlun, whose ownership of gay dating app Grindr is seen as a national security risk by the US

When Beijing Kunlun Tech bought the remaining shares it did not own in gay dating app Grindr in 2018, the Chinese video games developer said the acquisition was “critical” to its social media and content platform strategy that would help it become a leading global internet company.

Today, however, Kunlun may be forced to sell off Grindr after a US government body – the Committee on Foreign Investment in the United States (CFIUS) – told the firm that its ownership of the app constituted a national security risk, according to a Reuters report that cited unnamed sources.

That government intervention would push aside Kunlun’s plans for an overseas public listing of Grindr, which described itself as the world’s largest social networking app for gay, bisexual, transgender and queer people. It had an estimated 27 million users as of 2017.

Founded in 2008, Kunlun specialised in publishing browser-based video games, including popular role-playing titles Eden Eternal and Glory Destiny Online. It is also the China distributor for Clash of the Clans, a hit mobile game created by Finnish developer Supercell, which was acquired by internet giant Tencent Holdings in 2016.

The Beijing-based company was founded by Zhou Yahui, a graduate of China’s prestigious Tsinghua University. He became an overnight billionaire, with an estimated net worth of US$1.7 billion, when Kunlun went public on Shenzhen’s ChiNext board in January 2015.

Since its initial public offering, Kunlun has expanded into social media and content. It has acquired stakes in Norwegian browser company Opera, as well as online consumer credit provider Qudian and live-streaming portal Inke – both of which went public in the US and Hong Kong, respectively.

In January 2018, Kunlun paid US$152 million to buy the remaining 32 per cent shareholding in Grindr that it did not own. The company initially paid about US$93 million in 2016 for a 62 per cent interest in the app.

“There’s still a gap [to be filled] when it comes to gay dating,” Zhou told local media.

Grindr, which counts the US and Europe as its major user customer base, is one of three major businesses operated by Kunlun, contributing 12.9 per cent, or 3.4 billion yuan (US$506 million), to its total revenue in 2017. Kunlun’s business units include mobile gaming platform GameArk and entertainment social platform Xianlai Entertainment.

Kunlun derived 48 per cent of its revenue that same year from social networking and 45.5 per cent from gaming, with other income generated from online advertising. Kunlun was projected to record a net income of 1.17 billion yuan in 2018, according to analysts’ estimates compiled by Bloomberg.

Last August, Kunlun started preparations for the overseas public listing of Grindr. The timing of the listing is dependent on conditions in the international capital market and progress of approval from domestic and overseas regulators, Kunlun said in a public filing on the Shenzhen Stock Exchange at the time.

The CFIUS intervention, however, would put an end to that process. It also represented a rare case for CFIUS – the inter-agency body tasked to assess national security implications of mergers, acquisitions and takeovers that result in foreign control of any US business – to undo an acquisition that has already been completed.

Kunlun did not immediately respond to email and phone inquiries about the issue with CFIUS. An employee at its investor relations department said she was not authorised to comment on the matter. Grindr also did not respond to an emailed inquiry.

CFIUS did not immediately respond to an email requesting comment.

The Grindr issue marks an increased scrutiny by the US on how app developers and technology companies handle personal data. Last year, CFIUS blocked Ant Financial Services, an affiliate of e-commerce giant Alibaba Group Holding, from acquiring MoneyGram over national security concerns.

New York-listed Alibaba is the parent company of the South China Morning Post.

Shares of Kunlun have risen 14 per cent this year to 14.6 yuan at the close of trading on Wednesday, down from its January 2015 IPO price of 20.3 yuan.

Marc Balkenhol, a Grindr user in Germany, was not concerned about the possibility that his data may be stored in Chinese servers or could be monitored.

“Why should they do that?” Balkenhol said. “For me, personally I wasn’t satisfied there because many men weren’t serious.”

A 32-year-old Shenzhen resident, Joe Duan, said he was unaware that Grindr was owned by a Chinese company and thought it was a foreign app.

“I don’t see it is a major issue if the government tries to obtain information through the app, as there is not much important information there, except for some photos and chats,” said Duan. “I won’t stop using it even if some reports indicate that my data might not be safe. Grindr is the best app of its kind currently available, as it runs fast and there are a lot of good-looking guys on it.”

Additional reporting by Li Tao, Yingzhi Yang and Zheping Huang