SenseTime: state support for AI listing sends mixed message

It took just days for bankers to China’s largest artificial intelligence company to reopen the books on its postponed listing. The US banned its investors from participating and SenseTime then excluded them. The company has instead secured about $500m from nine cornerstone investors. There is good reason for its rush.

Many of the backers are Chinese state-backed funds. They include Mixed-Ownership Reform Fund and Shanghai Xuhui Capital. They have pitched in to rescue the deal after US allegations — denied by SenseTime — that it was developing facial recognition systems to spot members of Xinjiang’s oppressed Muslim Uyghur community.

The support operation is not narrowly political. SenseTime’s technologies are widely used in Chinese daily life and Beijing is pushing toward self sufficiency in big data and AI.

The rejig may make it easier for the faltering Hong Kong market to digest the listing. Cornerstone investors aside, the planned size of the fundraising is $767m, down from as much as $2bn earlier this year, for a valuation of around $17bn.

Returns have been disappointing and listings are shrinking. One of the biggest second half listings, Chinese music streaming platform Cloud Village, fell on its debut this month. Shares dropped a fifth in the past week despite being unrelated to big data, the focus of recent regulatory scrutiny.

Beijing may disapprove of tech listings beyond China’s mainland. Tech groups seeking a Hong Kong listing must undergo cyber security reviews under new big data regulations. Successive crackdowns have stemmed investment inflows.

The smaller size may be intended to reduce chances of a listing flop that would reflect poorly on joint sponsors including HSBC, China International Capital and Haitong. Local brokers BOCOM and Guotai Junan Securities have gone missing from the list of joint bookrunners and underwriters in the latest filing.

Investors are right to be wary about a company that is facing headwinds in both the US, through a blacklist, and China, via stricter data protection rules. Any local group that handles enough data is likely to be viewed as a target for regulators. It is understandable SenseTime is rushing its listing through. But the damage may already have been done.