SenseTime Group’s Hong Kong IPO of up to HK$5.99bn (US$768m) is in limbo after a media report suggested that the US will on Friday put the Chinese artificial intelligence company on an investment blacklist.
SenseTime, which is scheduled to price its float on Friday, was among eight Chinese tech companies named on a US entity list in October 2019 as part of escalating trade tensions between Beijing and Washington.
The Financial Times reported today the US Treasury will place SenseTime on a list of "Chinese military-industrial complex companies", which means Americans are barred from investing in companies on the list. It added that the action against SenseTime will be part of a part of a package of sanctions against a number of countries to mark Human Rights Day.
The possible inclusion has brought huge uncertainty about the IPO. The books are covered, with support mainly coming from Chinese investors, in addition to some participation from investors in Europe. US investors did not show much interest in the offering as the company is already on the US entity list.
However, if SenseTime is put on the military list, funds with any type of US links will not be able to participate in the deal. It is understood that some investors have already chosen to withdraw their orders for the IPO shares in reaction to the news.
Whether the sponsors will be able to continue to work on the transaction is another issue. Sponsors CICC, Haitong International and HSBC all have operations in the US. The three banks are also joint global coordinators and joint bookrunners with CMB International, China Merchants Securities and DBS. There are 11 other joint bookrunners which are all Chinese banks.
SenseTime is selling 1.5bn primary shares, or 4.5% of the enlarged share capital, in an indicative range of HK$3.85–$3.99 per share or at a 2022 forecast enterprise value-to-sales of 11.6–12.1.
There is a 15% greenshoe.
The range values the company at US$16.5bn–$17.1bn post money post greenshoe.
Eight cornerstone investors have made a total investment of US$450m. They are Mixed-Ownership Reform Fund (US$200m), Shanghai Guosheng Group and Shanghai AI Fund (US$25m), SAIC Motor (US$30m), GF Fund (US$30m), Pleiad Funds (US$50m), WT Funds (US$30m), Focustar Capital and Focustar Fund (US$50m), Hel Ved Capital (US$35m).
The deal is scheduled to price on December 10 and the shares will start trading on December 17.
Before the IPO, SoftBank owns 14.9% in SenseTime and Alibaba Group 7.6%.