China AI start-up Megvii pushes ahead with IPO despite US blacklisting

Chinese artificial intelligence (AI) start-up Megvii Technology is pressing ahead with plans for an initial public offering in Hong Kong and targeting a listing hearing in early November, despite getting blacklisted by the Trump administration, according to people familiar with the matter.

While Megvii has lost access to American components – including chips from Nvidia Corp that are key to its business – it has not changed its goal of going public, said the people, asking not to be named because the matter is private.

The company is appealing the US decision to include it on the Commerce Department’s Entity List, which prohibits American companies from providing crucial supplies like semiconductors, one person said.

US President Donald Trump’s administration blacklisted eight Chinese tech companies this month, accusing them of being implicated in human rights violations against Muslim minorities in the country’s far-western region of Xinjiang. The move is a setback for Megvii and the others named, and more broadly for the Chinese government, which has pledged to develop the country into one of the leaders in AI.

Megvii has said that the blacklisting is “unsubstantiated” and that the company complies with all laws and regulations in regions it has operations. Yin Qi, the company’s co-founder and chief executive, said in an internal letter that it would “fight” the US designation, according to the South China Morning Post.

The company may need to raise cash. Megvii lost 3.4 billion yuan (US$480 million) in 2018 after losing 759 million yuan the year before, partly because of changes in the value of preferred shares. It listed 1.4 billion yuan in cash, equivalents and bank balances at the end of June, while it used net cash of 674 million yuan for operations in the first six months of the year. Its term deposits, which refers to short-term bank deposits with maturities of three to twelve months, stood at 3.3 billion yuan as of June.