Chinese AI firm Megvii’s $500m HK IPO hits regulatory hurdle

FILE PHOTO: The logo of Face++ facial recognition software is seen at the Security China 2018 exhibition on public safety and security in Beijing, China, October 24, 2018. REUTERS/Thomas Peter

Chinese AI firm Megvii Technology’s plans for a $500 million listing in Hong Kong have been dealt a setback, with regulators in the city asking the company – which has been blacklisted by the U.S. government – for more information, three sources said.

Beijing-based Megvii did not win approval for its initial public offering (IPO) at a hearing with the Hong Kong Stock Exchange’s Listing Committee on Thursday, the people with knowledge of the matter told Reuters.

Megvii was given additional questions it must respond to by the committee, according to the sources, with one adding the decision followed a lengthy discussion of the application.

The meeting was a regularly scheduled committee hearing, during which the IPOs of several other companies were discussed and approved.

The 27-strong committee contains a mix of bankers, lawyers, accountants and investors, and its approval is essential for any IPO candidate.

Megvii and the three main banks working with it on the IPO – Citigroup, Goldman Sachs and JPMorgan – declined to comment, as did the Hong Kong Stock Exchange. The sources spoke on condition of anonymity because the information is not public.

Concerns about Megvii included questions about its suitability to seek an IPO, said the sources, after the Trump administration last month barred the company from buying U.S. parts and components without U.S. government approval.

Megvii was put on the blacklist along with seven other Chinese companies for their alleged involvement in human rights violations related to Beijing’s repression of Muslim minority populations in the Xinjiang Uighur Autonomous Region.

Megvii said at the time it strongly objected to being blacklisted, and there were “no grounds” for the designation.

The company, backed by e-commerce giant Alibaba, and its banking advisers are in the process of answering the listing committee’s questions, said two of the people.

Separate sources previously told Reuters the company had looked to go public in Hong Kong in the fourth quarter and planned to raise between $500 million and $1 billion.

The biggest market for raising funds though IPOs in 2018, Hong Kong has seen a slowdown this year amid anti-government demonstrations, though activity has increased since September.

Alibaba this week raised HK$88 billion ($11.3 billion) in a landmark Hong Kong secondary listing.

Megvii, known for its facial recognition platform Face++, was founded in 2011 by Chief Executive Yin Qi and two friends from Tsinghua University. If the IPO goes ahead, it will be the first Chinese AI firm to go public.

The company provides AI technology to governments and companies including Alibaba, Ant Financial and Huawei.

In May, a $750 million fundraising valued the company at slightly over $4 billion and attracted investors including Macquarie Group and the Abu Dhabi Investment Authority.

Reuters

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.