Megvii, the $4bn Chinese facial recognition company under US sanctions, has cleared a big hurdle on its way to a Hong Kong stock market debut, putting its $500m initial public offering back on track.
The stock exchange’s 27-member listing committee has cleared Megvii to publish a new prospectus, according to people involved in the process. The bourse said in November that the company had to provide more information about the effect of US sanctions on its operations.
The decision does not constitute formal approval to list, said the people, but it revives a process that was threatened after the US commerce department put Megvii on a blacklist last year on the grounds of alleged human rights abuses in China’s Xinjiang province.
Megvii has now been asked to submit an updated prospectus, which will again require the committee’s approval before an IPO can go ahead, the people said.
Beijing-based Megvii is one of China’s leading artificial intelligence start-ups and is hoping to raise about $500m with a listing this year, after initially aiming for $1bn. There is no timetable for the IPO.
The US commerce department in October put Megvii on its so-called entity list, accusing the company of aiding the “repression, mass arbitrary detention and high-technology surveillance” against Uighurs and other predominantly Muslim minorities in the western Chinese region of Xinjiang. It also accused the company of “acting contrary to the foreign policy interests of the US”.
The blacklisting of the company prompted Goldman Sachs to review its role in sponsoring the IPO, though it has not withdrawn from the deal.
Megvii said in 2018 that to the best of its knowledge only 1 per cent of its revenue — which that year was about $200m — was derived from projects in Xinjiang. It said it did not generate any revenue from Xinjiang in the six months through June 2019. Megvii was also mentioned in a May report from Human Rights Watch about surveillance in Xinjiang, but HRW has since withdrawn that allegation.
The company, founded in 2011 and known for its Face++ facial recognition platform, was valued at $4bn in its latest funding round in May last year. It would be the first Chinese AI company to go public.
It reported a net loss of Rmb5.2bn ($748m) for the first six months of 2019, according to a stock exchange filing, against revenue of Rmb949m.
The lossmaking start-up was able to pursue an IPO in Hong Kong after the exchange changed rules in 2018 that allowed unprofitable companies to list.
Goldman Sachs, Citi and JPMorgan are co-sponsors of the IPO. All three banks declined to comment. Megvii and the Hong Kong stock exchange also declined to comment.
A number of China’s biggest tech companies have signalled their intention to list in Hong Kong, including ByteDance, the company behind viral video app TikTok. Alibaba’s payments affiliate Ant Financial has also been touted as a potential listing in 2020.
Additional reporting by Hudson Lockett and Daniel Shane in Hong Kong