US blacklist is not stopping Megvii from seeking a Hong Kong IPO

The US blacklisted the Chinese tech firm over its alleged involvement in human rights violations of Muslims in Xinjiang.

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A propaganda banner and a security camera are placed on the walls of a mosque in the Old City in Kashgar, Xinjiang Uighur Autonomous Region, China. [Thomas Peter/Reuters]

Despite being blacklisted by the United States government, Chinese artificial intelligence firm Megvii Technology Ltd plans to seek listing approval on Thursday for a Hong Kong IPO of at least $500m, people with knowledge of the matter told Reuters News Agency.

However, Megvii has yet to decide whether to carry out a roadshow once approval is granted, one of the people said. The Beijing-based firm is backed by e-commerce giant Alibaba Group and is widely known for its facial recognition platform Face++.

Sources had previously told Reuters the listing was scheduled for Hong Kong in the fourth quarter and might raise as much as one billion dollars.

The latest move comes weeks after the US government placed Megvii and seven other Chinese companies on a trade blacklist over their alleged involvement in human rights violations in the Xinjiang Uighur Autonomous Region.

United Nations experts and activists say at least one million Uighurs and members of other largely Muslim minority groups have been detained in camps in Xinjiang in a crackdown that has drawn condemnation from the United States and other countries.

Beijing denies any mistreatment of the Uighurs or others in Xinjiang and says it is providing vocational training to help stamp out “extremism and separatism” and teach new work-related skills.

Goldman Sachs, which is a joint sponsor of the Megvii IPO alongside Citigroup and JPMorgan, said of its involvement last month that it was “evaluating in light of the recent developments”.

Megvii last month said it “strongly objects” to being added to the blacklist, and there were “no grounds” for the designation. In a statement, it said around one percent of revenues were derived from Xinjiang in 2018, and none in the six months ended June 30.

Megvii and the three banks declined to comment. But people close to the deal said that the listing approval would give the company and its sponsors some room for manoeuvre.

“Receiving the approval would give Megvii flexibility to launch the deal whenever it sees a window. But the deal itself could be a hard sell as many US investors would probably shun it, as long as the company is on the blacklist,” one of the people said.

Hong Kong, which topped the global charts in 2018 for funds raised through IPOs, has been roiled by nearly six months of political crisis. But IPO activity in the city has picked up since September, marked by Budweiser Brewing Company APAC Ltd, which raised about five billion dollars in Hong Kong’s biggest IPO so far this year.

Alibaba last week also launched the share sale for its Hong Kong listing, aiming to raise up to $13.4bn.

Megvii was founded in 2011 by Chief Executive Yin Qi and two friends from Tsinghua University. If the deal goes ahead, it will become the first Chinese AI firm to go public.

The company provides AI technology to governments and companies, including Alibaba, Ant Financial, Lenovo Group Ltd, and Huawei.

In May, a $750m fundraising valued the company at slightly over four billion dollars and attracted investors, including Macquarie Group and the Abu Dhabi Investment Authority.

Source: Reuters