(Bloomberg) — Chinese artificial intelligence firm SenseTime Group Inc. is delaying its Hong Kong initial public offering, according to people familiar with the matter, as tensions with the U.S. government ratcheted higher at the last minute.
The AI startup’s IPO will not be priced on Friday as expected because the banks need to make adjustments and address regulatory concerns, one of the people said, asking not to be identified as the information is private.
Bankers had been gauging investor interest in the IPO when news broke about the plan to add the firm to the Treasury Department’s list of so-called Chinese military-industrial complex companies, timed to fall on Human Rights Day as well as SenseTime’s expected pricing.
Deliberations are ongoing and the share sale could resume at some point in the future, the people said. A representative for SenseTime declined to comment.
A pause or withdrawal of the offering would make it more difficult for SenseTime to satisfy early backers with whom it has an agreement that it will go public by a certain date, people familiar with the matter said.
To proceed with the IPO, the company would likely need to update the section of its prospectus detailing the risks for potential investors to reflect the blacklist development, the people said.
SoftBank Group Corp. agreed in the most recent funding round for SenseTime that if the company did not list by April, it would have to buy back the shares from investors, one of the people said, asking not to be identified because the information is private. A representative for SoftBank didn’t respond to a request for comment.
The company was already on one U.S. government blacklist, having been put on the Commerce Department’s Entity List in 2019 alongside more than 20 other entities. The AI firm was added to the list because of its alleged role in human rights violations against Uyghur Muslims in China’s Xinjiang province. SenseTime previously denied the allegations. Companies on the entity list are prohibited from doing business with American companies without a license.
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SenseTime got a boost during the coronavirus pandemic when its facial recognition software was used in numerous Chinese cities to monitor whether people entering subways were wearing masks, take their temperature and even detect their identities while their faces were covered.
The shares were expected to start trading on Dec. 17. China International Capital Corp., Haitong International Securities Group Ltd. and HSBC Holdings Plc were the joint sponsors for the first-time share sale.
Eight cornerstone investors had committed to subscribe for $450 million in SenseTime shares, representing about 59% of the offering, according to a preliminary prospectus. They include the state-owned Mixed-Ownership Reform Fund, which is buying $200 million worth of shares, as well as funds affiliated with Hong Kong’s Pleiad Investment Advisors Ltd. SenseTime’s investors also include Alibaba Group Holding Ltd., Primavera Capital, Sailing Capital and Silver Lake, the prospectus showed.
(Updates with SenseTime comment in the fourth paragraph.)
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