SenseTime Revives IPO Days After U.S. Investment Blacklist Forced Delay

On Dec. 10, the day that the company was originally poised to price its IPO, the U.S. Treasury Department placed SenseTime on a list of companies that it said support China’s military. The blacklist prevents American investors from buying the company’s stock. The U.S. said a SenseTime subsidiary’s facial-recognition technology was used in the Chinese government’s efforts to identify and suppress mainly Muslim ethnic minorities in western China.

Three days later, SenseTime postponed the share offering. The Wall Street Journal reported that SenseTime was hoping to relaunch the deal as soon as this month.

SenseTime has stepped up its use of cornerstone investors to support the deal. Cornerstone investors are common in large Hong Kong IPOs. They commit to buy a set dollar amount of shares wherever in the range a deal prices, and agree to hold that stock for six months or more, serving as an endorsement of the deal to others.

At the midpoint of the deal’s price range, cornerstone investors would now account for about 67.7% of the deal, up from 59.7% previously. Those figures assume that underwriters don’t exercise a so-called green shoe option to boost the deal’s final size by 15%.

SenseTime still has nine cornerstone investors, though five of the nine have changed. Some Hong Kong-based hedge-fund managers, including Pleiad Investment Advisors Ltd. and WT Asset Management Ltd., are no longer participating. The biggest new cornerstone is Xuhui Capital, a state investment vehicle established earlier this year that is funded by the state-owned Assets Supervision and Administration Commission of Shanghai Xuhui District.

The company added new information to its prospectus, warning that current and potential U.S. restrictions “could limit our group’s ability to raise funds, in particular, from U.S. investors, and the liquidity and market price of our publicly traded securities” could be hurt.

The company reiterated its opposition to the blacklisting, which it previously said reflected a fundamental misunderstanding of its business.

“Our group’s products and services are intended for civilian and commercial uses and not for any military application,” SenseTime said.

SenseTime said lawyers advised it that the sanctions only applied to an unlisted subsidiary, SenseTime Group Ltd., and not to the parent company that was going public, meaning that the blacklisting didn’t technically bar U.S. investors from buying or holding its stock. Still, it said it had decided not to sell shares to U.S. investors as part of the IPO, due to “the dynamic and evolving nature” of American regulations, and warned that the parent company or other units could potentially be blacklisted in the future.

Existing U.S. shareholders of SenseTime include the private-equity firm Silver Lake and chip maker

Qualcomm Inc.’s

venture arm.

SenseTime’s IPO size was already cut down from $2 billion earlier this year, due to weak market sentiment and a previous U.S. blacklisting, The Wall Street Journal reported previously.

The U.S. Department of Commerce put a Beijing-based subsidiary of the company on a separate blacklist for exports, known as the Entity List, in October 2019. The move restricts SenseTime’s ability to buy certain technology, software and goods and it was flagged as a major risk in the prospectus.

It has been a volatile period for U.S.-listed Chinese companies. Groups including

China Mobile Ltd.

and

China Telecom Corp.

were forced to delist from the New York Stock Exchange after former President

Donald Trump

put them on the same investment blacklist to which SenseTime was recently added.

SenseTime’s rival, Megvii Technology Ltd., has also been placed on both blacklists.

Write to Jing Yang at [email protected]