SenseTime seeks up to $17bn valuation in Hong Kong IPO

SenseTime, the Chinese artificial intelligence company specialising in facial recognition software, is seeking a valuation of up to $17bn in an initial public offering, in what would be Hong Kong’s largest listing in months.

The company plans to raise between $750m and $767m, according to a term sheet seen by the Financial Times. With 1.5bn shares on offer representing about 4.5 per cent of its stock, that target range would give it a valuation of between $16.5 and $17bn.

SenseTime had previously hoped to raise up to $2bn from its Hong Kong listing. The downsized IPO comes as China’s technology sector is facing greater regulatory scrutiny from Beijing, leading to a rout in the shares of companies focusing on ecommerce, gaming and food delivery

The regulatory crackdown has hit equity fundraising in Hong Kong, which at $26bn is down a fifth from last year’s total even as global IPO fundraising has jumped three-quarters, with deals in New York alone rising to almost $300bn.

HSBC is the only western investment bank involved in the SenseTime IPO, according to executives at US investment banks.

Other international lenders have avoided the deal after SenseTime was blacklisted by the US for allegedly aiding in human rights abuses in China’s north-western Xinjiang region. SenseTime has denied the allegations.

“As an AI unicorn, its profitability has been [very limited],” said Edmond Hui, chief executive at Hong Kong brokerage Bright Smart Securities, of SenseTime.

He added that the IPO’s reduced size was mainly due to concerns over market volatility, making it difficult to predict if the company would receive the level of investor oversubscription typical of past tech listings in Hong Kong.

SenseTime opened books for the deal on Monday, with pricing expected on Friday and trading set to begin on December 17.

The deal also included eight cornerstone investors who have committed to purchasing $450m worth of shares, equal to about 59 per cent of the offer if it prices at the top of the targeted range. Cornerstone investors are commonly used in Hong Kong to bolster the confidence of retail investors and ensure a smooth listing.

The cornerstone investments for SenseTime included a $200m stake to be held by the Mixed-Ownership Reform Fund, established in late 2020 by state-run China Chengtong Holdings Group and other investors under the auspices of China’s State-owned Assets Supervision and Administration Commission.

A person familiar with the deal said it had already received orders in excess of the shares on offer after accounting for cornerstone buyers, mostly from long-only investors.

Top backers of SenseTime include SoftBank, Alibaba, Tiger Global and Silver Lake.

SenseTime’s share sale will follow the lacklustre debut of Cloud Village, the music-streaming business of tech group NetEase, whose diminished $422m IPO last week saw shares drop 2.5 per cent.

The SenseTime IPO will also mark the largest offering in Hong Kong since state-backed Dongguan Rural Commercial Bank raised $1.2bn in September.

SenseTime’s listing could raise as much as $882m if bankers execute a “green shoe” option, which would allow them to boost the size of the offering in response to strong demand.

But even then, the much-anticipated listing would not be the largest tech offering of the year in Hong Kong, a title held by JD Logistics, the supply chain business of Alibaba rival JD.com, which raised $3.6bn in May.