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China’s money-hungry AI firms seek IPOs in Hong Kong

Written by Jiaxing Li Published on     2 mins read

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SenseTime and Yitu Technology, two of China’s four loss-making “AI dragons,” have few options other than to go public to raise capital.

Two of China’s most valuable but controversial AI companies, SenseTime and Yitu Technology, are both said to be seeking initial public offerings in Hong Kong, Bloomberg reported on Wednesday and Thursday. The two companies are making moves at a time when major Chinese tech firms have called off or suspended plans to go public in the US, and when domestic firms face multi-pronged crackdowns by legislators in China.

SenseTime is reportedly working with HSBC and China International Capital Corp (CICC) to arrange its IPO process and could raise at least USD 2 billion. Yitu’s IPO target price remains unclear.

SenseTime declined to offer a comment on the matter when approached by KrASIA.

The two AI firms both provide services related to facial recognition, autonomous driving, and augmented reality. SenseTime’s business surged in 2020 when its surveillance systems were installed as part of pandemic precautions, according to South China Morning Post.

Chinese AI firms have been seeking the right opportunity to go public to raise funds, as high R&D costs and slim margins make it difficult to turn a profit. As early as 2017, one co-founder of SenseTime, Tang Xiao’ou, stated that the company was considering an IPO in mainland China, Hong Kong, or the United States.

But SenseTime became the subject of a series of controversies due to its business ties with the Chinese government. Both SenseTime and Yitu were blacklisted by the Trump administration in 2019.

The road to floating shares at home is bumpy for AI firms. Another “AI dragon,” Megvii, is now under strict scrutiny as the Shanghai Stock Exchange is seeking detailed disclosures regarding its data protection measures and privacy terms.

As regulators in China rein in tech giants, some companies have already halted their IPO plans. Earlier this month, NetEase Music suspended its IPO process due to unfavorable market conditions and an uncertain outlook for tech firms.

Abrupt policy changes for the tech sector have spooked overseas investors to the extent that the  US Securities and Exchange Commission issued a new risk disclosure requirement for Chinese companies seeking IPOs in New York. SEC chairman Gary Gensler warned US investors on Monday about the risk of investing in shell companies of Chinese firms.

“That means disclosing the political and regulatory risk that the government of China could, as they’ve done a number of times recently, significantly change the rules in the middle of the game,” Gensler said, referring to the abrupt tech crackdowns that triggered panic selling and stock market plunges.

SenseTime and Yitu have each completed ten rounds of fundraising. Each company has raised at least USD 3 billion, according to investment data aggregator Tianyancha. The latest valuation of SenseTime is around USD 12 billion after its most recent investment in December 2020, according to Tencent News.

Read this: Cloudwalk to be the first of China’s 4 ‘AI dragons’ to go public

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