China's SenseTime perseveres with IPO despite blacklisting

The company, which has raised more than $5.2 billion in private funding over the past seven years, announced plans earlier this month to raise HK$5.99 billion ($768.1 million) through the sale of 1.5 billion shares at HK$3.99 apiece. This represented a pared-back target.

The offering was temporarily withdrawn following an announcement by the US State Department that SenseTime had been added to a list of "Chinese military-industrial complex companies" that are off-limits to US investors. This was for SenseTime’s alleged role in developing technology that enables human rights abuses. The company denies the claims.

In the relaunched offering, the cornerstone commitment has grown from $450 million to $511.6 million. The addition Xuhui Capital and an increased contribution from Shanghai Guosheng Group – both are controlled by Shanghai government entities – counterbalanced several other investors dropping out. The Mixed-Ownership Reform Fund, under China’s State Council, is the largest investor.

SenseTime noted in a filing that the new sanctions do not hamper its business operations, only prohibit US investors from buying its shares. The company is scheduled to begin trading on December 30.

This is not the first time SenseTime has appeared on a US government blacklist. In 2019, it was one of eight Chinese AI start-ups hit by restrictions on component sourcing from US companies, also for alleged contribution to human rights violations. Plans for a New York IPO were abandoned as a result.

SoftBank Vision Fund 1 is SenseTime’s largest external investor with 14.88%, followed by Primavera Capital Group and Silver Lake with 3.05% apiece. IDG Capital, China Structural Reform Fund, Shanghai International Group, Sailing Capital, and CDH Investments each own between 1% and 2%.

SenseTime was formed in 2014 by Xiao’ou Tang, a professor at the Chinese University of Hong Kong, alongside two PhD students – Li Xu and Bing Xu – and Fan Yang, formerly a software development engineer at Microsoft. It now claims to be Asia’s largest AI company by revenue, supporting over 450 mobile phones and 200 apps. There are more than 2,400 customers in total.

The company has built a universal AI infrastructure that serves as the backbone for software platforms that feature in commercial space management, residential property management, urban management, manufacturing, infrastructure, transportation, healthcare, and automobiles. The core offering is SenseCore, which combines supercomputers, data processing, and developer tools.

SenseTime also provides standardized software platforms – each one featuring thousands of AI models – that can be embedded into this infrastructure. There are four broad categories or use cases: enterprise management, real-time coordination of public utilities, connecting consumer-oriented internet-of-things (IoT) devices, and advanced driver assistance and AI-as-a-service for cars.

Revenue reached RMB3.45 billion ($541 million) in 2020, up from RMB3 billion the previous year. Gross profit margins grew from 56.8% to 70.6% over the same period, but net losses widened from RMB4.97 billion to RMB12.2 billion. These losses are largely attributable to fair value losses on SenseTime’s preferred shares, according to the prospectus.

Of the company’s total private funding, $2.9 billion has been raised since the start of 2019. IDG and StarVC were among the earliest investors. Other backers include CICC Capital, 5Y Capital, Fidelity, Mirae Asset, Tiger Global Management, Hopu Investment, Qualcomm Ventures, Alibaba Group, Temasek Holdings, Dalian Wanda Group, Advantech Capital, and China Renaissance.

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• Topics
• Greater China
• Technology
• IPO
• Regulation
• China
• artificial intelligence
• Softbank
• Primavera
• Silver Lake
• IDG capital
• CDH Investments Management
• sailing capital