Megvii hits hurdle as Hong Kong delays IPO approval

Megvii, the $4bn Chinese facial recognition company, has hit a hurdle on the way to an initial public offering in Hong Kong after the stock exchange asked for more information about the impact of US sanctions.

The Beijing-based company, one of China’s leading artificial intelligence firms, was planning a listing next year that would aim to raise between $500m and $1bn.

Its decision to proceed with an IPO, despite being placed on a blacklist by the US commerce department in October, was seen as a vote of confidence in Hong Kong, despite the recent turmoil on its streets.

But the Hong Kong stock exchange’s 27-member listing committee did not grant approval, and instead asked for more information from the company, according to two people familiar with the situation.

One banker familiar with the matter said that the listing committee wanted more details on how the blacklisting would affect Megvii’s revenue. A separate person said that it was highly unlikely the committee would approve Megvii’s listing application until it was removed from the blacklist.

Megvii declined to comment. The company, known for its facial recognition system Face++, was founded in 2011 and is planning to be the first Chinese AI firm to go public.

The blacklisting of the company caused Goldman Sachs to review its involvement in Megvii’s IPO, but it has not yet withdrawn from the deal.

The commerce department has accused Megvii of aiding the “repression, mass arbitrary detention and high-technology surveillance” in the western Chinese region of Xinjiang.

US companies are forbidden from trading with entities on the blacklist, which also includes SenseTime, Yitu and iFlytek, some of China’s most ambitious and promising artificial intelligence start-ups.

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Megvii, which posted a net loss of $738m in the first half of the year, said in 2018 that to the best of its knowledge only 1 per cent of its revenue was derived from projects in Xinjiang. It was also singled out in a May report from Human Rights Watch regarding surveillance in Xinjiang, but HRW subsequently withdrew that allegation.

Megvii raised $750m in May from investors including the Bank of China’s private equity arm and the Abu Dhabi Investment Authority. It had hoped to debut in the public markets in early 2020.

Hong Kong relaxed rules last year to allow unprofitable companies to list on its exchange. That has led to a flurry of listings in the biotech space in recent months.

Megvii’s decision to press ahead with an IPO came as the ecommerce giant Alibaba pressed ahead with a listing on the city’s exchange next week in a float worth up to $12.9bn. Hong Kong, one of Asia’s premier financial centres, has been rocked by months of political upheaval and the Sino-US trade war.



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