Alibaba-backed Chinese A.I. firm Megvii files for Hong Kong IPO

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Alibaba-backed Chinese A.I. firm Megvii files for Hong Kong IPO
* Chinese artificial intelligence firm Megvii filed for an initial public offering in Hong Kong.
* The company is known for its facial recognition technology.
* In 2018, its revenue grew over 350% compared to a year ago but losses widened.
* The company warns of risks to its business stemming from the U.S.-China trade war.

Arjun Kharpal
26 August 2019

Chinese artificial intelligence (AI) firm Megvii has filed for a public listing in Hong Kong.

The company is backed by e-commerce giant Alibaba and state-owned enterprises such as Bank of China Group Investment, the bank’s private equity arm. Megvii sells AI products from facial recognition technology to algorithms designed for traffic management.

It has not released the pricing of its shares or the timeline of its initial public offering (IPO). But the firm has signaled confidence in the Hong Kong market despite the ongoing protests and a recent report that Alibaba has postponed its listing there.

Earlier this year, Megvii completed a $750 million funding round, reportedly putting its valuation north of $4 billion. Its closest rival, Sensetime, has a valuation at over $4.5 billion.

Widening losses

Facial recognition is a key part of China’s drive to become a world leader in AI technology by 2030, and both companies are benefitting from that as the technology has been deployed in cities across China. The Chinese government is one of its key customers.

This has helped Megvii see fast revenue growth. The company hit 1.42 billion yuan ($199.7 million) in revenue in 2018, an increase of more than 350%. In the first six months of 2019, Megvii raked in 948.9 million yuan.

However, losses have continued to widen. Megvii made a loss of 3.35 billion yuan in 2018, compared to 758.8 million in 2017. In the first six months of this year alone, the company lost 5.2 billion yuan — more than the amount it lost throughout 2018. Megvii attributed this to continued investment in research and development.

Trade war risks

Megvii outlined a number of risks for its business, from ballooning research and development costs to negative publicity relating to facial recognition technology. For example, a recent report from Human Rights Watch linked Megvii to China’s mass surveillance of the minority Uighur population in Xinjiang. The report was later corrected to show Megvii was not involved.

“Although the allegations made by the report in relation to our involvement with the misuse of our technologies were proven to be wrong ... such report had still caused significant damages to our reputation which are difficult to completely mitigate,” Megvii’s prospectus said, without explicitly naming the Human Rights Watch study.

The company also highlighted a number of risks around the escalating U.S.-China trade war.

In May, reports surfaced that Megvii could be one of a handful of Chinese surveillance firms that could be put on a U.S. blacklist which would restrict American firms from selling technology to them. While the U.S. government has not made an official announcement about this, Megvii said if it were to happen, the company’s ability “to develop and provide our solutions might be impaired.”

More details in https://www.cnbc.com/2019/08/26/alibaba-...g-ipo.html

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Exclusive: Blacklisted Megvii's $500 million HK IPO hit by regulatory setback - sources

Scott Murdoch, Julie Zhu
NOVEMBER 22, 2019 / 5:50 PM

HONG KONG (Reuters) - Chinese AI firm Megvii Technology’s plans for a $500 million listing in Hong Kong have been dealt a setback, with regulators in the city asking the company - which has been blacklisted by the U.S. government - for more information, three sources said.

Beijing-based Megvii did not win approval for its initial public offering (IPO) at a hearing with the Hong Kong Stock Exchange’s Listing Committee on Thursday, the people with knowledge of the matter told Reuters.

Megvii was given additional questions it must respond to by the committee, according to the sources, with one adding the decision followed a lengthy discussion of the application.

The meeting was a regularly scheduled committee hearing, during which the IPOs of several other companies were discussed and approved.

The 27-strong committee contains a mix of bankers, lawyers, accountants and investors, and its approval is essential for any IPO candidate.

The Hong Kong Stock Exchange did not immediately respond to a request for comment. Megvii and the three main banks working with it on the IPO - Citigroup, Goldman Sachs and JPMorgan - declined to comment. The sources spoke on condition of anonymity because the information is not public.

Concerns about Megvii included questions about its suitability to seek an IPO, said the sources, after the Trump administration last month barred the company from buying U.S. parts and components without U.S. government approval.

Megvii was put on the blacklist along with seven other Chinese companies for their alleged involvement in human rights violations related to Beijing’s repression of Muslim minority populations in the Xinjiang Uighur Autonomous Region.

Megvii said at the time it strongly objected to being blacklisted, and there were “no grounds” for the designation.

The company, backed by e-commerce giant Alibaba, and its banking advisers are in the process of answering the listing committee’s questions, said two of the people.

More details in https://www.reuters.com/article/us-megvi...SKBN1XW13Y