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China tech

Chinese gay dating app Blued seeks $50m IPO in US

Plan for Nasdaq listing comes despite rising scrutiny of China issues

BlueCity Holdings says its app has more than 6 million monthly users: The company is bucking a trend among Chinese companies, which are nervous about U.S. listings. (Photo by Yuki Kohara)

HONG KONG -- The operator of China's largest gay dating app, Blued, is planning an initial public offering in the U.S. despite Washington's growing suspicion of Chinese companies listed on U.S. stock exchanges.

Beijing-based BlueCity Holdings, which has more than 6 million monthly users on its social networking platform, aims to raise at least $50 million on the Nasdaq exchange, according to a prospectus filed with the U.S. Securities and Exchange Commission on Tuesday.

BlueCity's move comes as U.S.-listed Chinese companies face growing regulatory headwinds. This month, President Donald Trump asked U.S. regulators to put forward ways to tighten scrutiny of New York-listed Chinese companies within 60 days, raising concerns that Chinese companies may be ousted from U.S. financial markets.

To hedge against that risk, e-commerce giant JD.com and gaming heavyweight NetEase recently launched secondary listings in Hong Kong, following Alibaba Group Holding's float on the Asian bourse last year.

Washington's desire to step up scrutiny of Chinese companies has also grown after financial irregularities surfaced at Luckin Coffee, which has admitted that senior employees fabricated sales figures.

BlueCity's decision to list in the U.S. also contrasts sharply with moves by other Chinese companies to pull out of American exchanges because they felt their shares were undervalued. This month, 58.com, often called the Craigslist of China, and BitAuto, an automobile information provider, agreed on deals to go private.

The buyout group for 58.com, which includes the company's chairman, Yao Jinbo, and private equity firms Warburg Pincus and General Atlantic, agreed to delist at a 20% premium to the share price. A group led by Tencent Holdings entered a deal to take BitAuto private and has offered a 16.4% premium for the shares.

Jerry Liu, an analyst with Swiss bank UBS, said that the U.S. still remained an attractive destination for most private Chinese companies.

"Going public is a long-term commitment, and company executives won't change their minds just because of what they read in recent news," Liu said during a webinar ahead of BlueCity's filing.

"Investors in the U.S. are familiar with the business model of internet companies, which often requires yearslong losses in order to build their platform," Liu said, adding, "Such an acceptance is a major draw to Chinese companies." 

BlueCity's move also comes after Chinese gaming company Beijing Kunlun Tech, former owner of U.S.-based gay dating app Grindr, sold off the company this year on orders from the Committee on Foreign Investment in the United States. CFIUS raised concerns regarding the safety of users' personal data. The sale was completed in May.

With roughly 49 million registered users from 210 regions, BlueCity had revenue of 758.9 million yuan ($107.1 million) last year, up from 501.3 million yuan in 2018, according to the company's filing. In the first quarter of this year alone, it generated sales of 207.5 million yuan. However, the eight-year-old startup logged a net loss of 7.6 million yuan in the first three months of this year.

As of March, users in countries and regions outside China represented nearly half of Blued's monthly users. But nearly 90% of its revenue comes from China. That, in turn is a business risk for the company.

"Under the Cyber Security Law of China, any individual or organization using the network must comply with the constitution and the applicable laws in China, and the owners and administrators of networks and network service providers have various security-protection obligations," BlueCity said in its filing.

"The LGBTQ population generally has higher expectations about identity-protection and privacy. If we fail to secure and conceal our users' identities and to protect their identity-specific data ... we may be held liable for incidents, and our users may feel insecure and cease to use our products and services," the company said.

The company, backed by Xiaomi's venture arm, Shunwei Capital, said the money raised through the IPO will be used for overseas expansion and technology innovation. Its sponsors include CLSA, Tiger Brokers, AMTD and Loop Capital Markets.

There have been regulatory risks for Chinese gay dating apps in China. Rela -- a popular Chinese dating app for lesbians -- was temporarily shut down in 2017, along with its website and main social media account. The same year another gay Chinese dating app, Zank, was shut down after operating for about four years.

Additional reporting by Narayanan Somansundaram in Hong Kong.

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