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Chinese AI group SenseTime postpones IPO following US sanctions

Written by Nikkei Asia Published on     3 mins read

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Company ‘remains committed’ to plan for Hong Kong share sale.

Chinese artificial intelligence company SenseTime Group postponed its Hong Kong initial public offering on Monday following Washington’s move to add the company to an investment blacklist.

The company had launched its debut share sale last week, aiming to raise as much as USD 767 million.

It was originally due to price the sale last Friday, but the timetable was derailed amid news reports the night before that the US would penalize the company and others on Friday to mark Human Rights Day.

Washington alleges that the company’s technologies have been used for human rights abuses. SenseTime initially responded on Saturday to Washington’s announcement by saying, “The decision and related allegations are unfounded and reflect a fundamental misunderstanding of our company.”

On Monday, SenseTime said it would update its prospectus and revive its share sale, but would have to first refund payments it received for share orders last week.

“The company remains committed to completing the global offering and the listing soon,” SenseTime said in its filing to the Stock Exchange of Hong Kong.

Under its original plan, SenseTime was to announce the sale pricing on Thursday and its shares would have started trading on Friday.

The company has been working with advisers on IPO plans since 2019. An earlier round of US sanctions set back its first effort but it moved ahead with applying to the Hong Kong exchange earlier this year, with an eye toward raising USD 1.5 billion to USD 2 billion.

The latest sanctions categorize SenseTime under US Treasury Department regulations as a “Chinese military-industrial complex company.” US investors are prohibited from buying publicly traded securities of any company on the list and required to divest of any they hold by next June.

SenseTime’s American backers include chipmaker Qualcomm, private equity group Silver Lake Partners, venture group IDG Capital, and mutual fund group Fidelity International.

Other international investors named in SenseTime’s prospectus include Japan’s SoftBank Group and South Korean fund manager Mirae Asset Financial Group.

In China, it is backed by Alibaba Group Holding, AI developer iFlytek, electronics retailer Gome Retail Holdings, investment bank China International Capital, Dajia Insurance, CDH Investments, investment manager Primavera Capital Group and several state funds.

Nine cornerstone investors, mostly state-owned funds, had committed to buy as much as USD 450 million of the IPO shares, a majority of the offering.

A spokeswoman for Fidelity said on Monday that the company, which invested in SenseTime in 2019, would not comment on the investment sanctions imposed on the company or its delayed IPO.

SenseTime recorded a loss of RMB 3.71 billion (USD 583 million) on revenues of RMB 1.65 billion in the first half of 2021.

Founded in 2014, SenseTime is best known for facial recognition technology widely used in China’s surveillance network. It generates revenue mainly from software license fees, software-embedded hardware, research and development services, pre-installed products sold to carmakers, and subscription-based cloud services.

According to the US Treasury announcement on Friday, wholly owned subsidiary Shenzhen SenseTime Technology has “developed facial recognition programs that can determine a target’s ethnicity, with a particular focus on identifying ethnic Uyghurs.”

In its prospectus, SenseTime said that Washington’s 2019 sanctions, which restricted its access to US technologies, applied only to subsidiary Beijing SenseTime and not other parts of the group.

“Our group’s previous sales to customers in Xinjiang were in compliance with PRC laws,” it added, referring to the People’s Republic of China. It said it had made no sales to Xinjiang customers in the first half of 2021. Over the last four years, such sales were highest in 2019, comprising 0.6% of the company’s total revenue.

Other companies on Treasury’s China military companies list include chipmaker Semiconductor Manufacturing International Corp., surveillance camera maker Hangzhou Hikvision Digital Technology, the country’s three major telecommunications operators, and unlisted Huawei Technologies.

This article first appeared on Nikkei Asia. It’s republished here as part of 36Kr’s ongoing partnership with Nikkei.

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