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China tech

SenseTime to seek up to $1bn private funding, deferring Hong Kong IPO

Weak investor sentiment over coronavirus and US blacklist hurts AI startup's plans

Hong Kong-based SenseTime, which counts Alibaba, Qualcomm and SoftBank among its backers, began working with investment bank China International Capital Corp. on its initial public offering last year.   © Reuters

HONG KONG -- Chinese artificial intelligence startup SenseTime Group has deferred its plan for an up to $750 million initial public offering in Hong Kong this year and instead aims to tap private markets, people briefed on the plan said, joining the list of companies scrapping share-sale plans as the novel coronavirus outbreak batters markets.

Hong Kong-based SenseTime, which counts Alibaba Group Holding, Qualcomm and SoftBank Group among its backers, began working with Chinese investment bank China International Capital Corp. on the IPO last year, but its plans were scuppered when the U.S. blacklisted eight Chinese companies including SenseTime, accusing them of human-rights violations and imposing export restrictions.

The company, which according to a Reuters report expected 2019 revenue to increase 200% to $750 million, is still cash-flow negative given its investment plans, these people said, adding that SenseTime could look at raising $500 million to $1 billion from existing and new backers or doing a pre-IPO fundraising.

SenseTime last year undertook several investor meetings to explain the company's evolving business model, which now encompasses facial recognition, robot delivery, smart health and education.

While Beijing-based rival Megvii Technology, which was also among those sanctioned by the U.S., has recently gained approval for an IPO from the Hong Kong Stock Exchange, SenseTime took the decision to stay off public markets for now given the challenges, these people said.

SenseTime's artificial intelligence computer, called "Smart AI Epidemic Prevention," in a Shenzhen office building this month. The computer measures visitors' body temperatures, and also checks their identities and whether they are wearing masks.   © EPA/Jiji

"The whole episode with the U.S. didn't cast a good light on the industry," one of the persons familiar with the plans said. "While Megvii has been cleared, we think we would have a better public market outcome if we wait. Besides, current market conditions have effectively shut the IPO market for a while."

SenseTime did not confirm or deny the fundraising plans. Instead, the company said in an email statement: "We do not have any new financial plans or information to share at this stage."

The coronavirus pandemic has infected nearly 200,000 people and led to almost 8,000 deaths so far, and has pushed many businesses and economies to the brink as borders are closed and the supply chain and workforce are severely disrupted. With a global economic recession likely, investors have fled to safe-haven investments. Global stocks have lost nearly $20 trillion since mid-January's highs.

Potential IPO aspirants have had to put off plans as investors' meetings have been canceled. New share sales in Hong Kong, the world's largest IPO market last year, were down 93% to $49 million in February from the same period a year earlier, according to Dealogic.

Meanwhile, only three companies went public in Hong Kong in February, compared with nine in the same month last year. Volumes this month through March 18 totaled $572 million from 10 IPOs, Dealogic said.

The private markets have fared a bit better, according to bankers. There is still an appetite among private equity and venture capital funds to deploy money in "sure bets." They said that hedge funds also are looking at safe companies for pre-IPO funding.

Companies such as SenseTime that have regularly met with potential investors have a better chance of tapping money managers for funding, they said. Six-year-old SenseTime has raised a total of $2.6 billion in investment, according to the estimates of industry portal Crunchbase.

The company was valued by research firm CB Insights at $4.5 billion last year, although Bloomberg cited SenseTime's co-founder and CEO, Xu Li, as saying in September that the valuation of the company had surpassed $7.5 billion.

In a presentation at the Massachusetts Institute of Technology in 2018, SenseTime's co-founder, Tang Xiaoou, announced that his company beat Facebook to achieve a nearly 99% success rate for its facial recognition technology, making it one of the most advanced artificial intelligence solution providers in the world.

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