Chinese artificial intelligence firm SenseTime Group is delaying its Hong Kong initial public offering after being blacklisted by the US government on its scheduled IPO pricing day, after the retail tranche of its HK$5.985 billion share sale was four times oversubscribed.
The firm was added to the US Treasury Department's Non-SDN Chinese Military-Industrial Complex Company List on Friday, which bans US investors trading in SenseTime's stake. The US authority said that SenseTime "has developed facial recognition programs that can determine a target's ethnicity, with a particular focus on identifying ethnic Uyghurs."
Following the ban, the AI startup did not price its IPO as expected because the banks need to make adjustments and address regulatory concerns, sources said.
Bankers had been gauging investor interest in the IPO when news broke about the plan to add the firm to the Treasury Department's blacklist, 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. 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, they said.
US banks had stayed away from SenseTime's share sale with Chinese firms being the main players, according to the prospectus, while HSBC works as a joint sponsor and DBS as joint global coordinator, joint bookrunner, and joint lead manager
SenseTime responded on Saturday that the US government's accusations are "unfounded and reflect a fundamental misunderstanding of our company." The firm said it has "been caught in the middle of geopolitical disputes" and it will "take appropriate action to protect the interests of our company and our stakeholders."
SenseTime was already on one US government blacklist, having been put on the Commerce Department's Entity List in 2019, because of its alleged role in human rights violations against Uyghur Muslims in China's Xinjiang province.
Despite the previous blacklist, SenseTime had received no less than HK$3.08 billion via margin financing, making its retail tranche of its initial public offering in Hong Kong at least 4.15 times oversubscribed.
A total of nine cornerstone investors including the Mixed Ownership Reform Fund, Guosheng Overseas HK, and Shanghai AI Fund, have subscribed to US$450 million (HK$3.51 billion) worth of shares.
Founded in 2014, SenseTime is best known for its facial recognition technology with its main source of revenue coming from sales of software platforms.
SenseTime's annual revenue rose 63.30 percent year-on-year to around 3.03 billion yuan in 2019 and a further 13.88 percent to 3.45 billion yuan in 2020, mainly thanks to the growth of its Smart Business and Smart City services.
Its Smart City platform SenseFoundry, which monitors public facilities, detects incidents and tracks the impact of natural disasters, saw the number of cities served jump from 21 in 2018 to 119 as of June this year.
In 2021, Smart City contributed 47.6 percent of SenseTime's total revenue in the first half with Smart Business coming in with 39.2 percent. Total revenue increased by 91.8 percent to 1.65 billion yuan in the first half of 2021, with over 85 percent coming from the mainland and 12.3 percent from Northeast Asia.
SenseTime also provides Smart Life services for the internet of things, metaverse and healthcare, as well as Smart Auto services, which includes autonomous driving.
However, like most tech companies, it remains unprofitable despite the latest revenue surge, with its net loss widening to 12.2 billion yuan last year and hitting 3.71 billion yuan for the first half.
