China’s High-Tech Board OKs First Dual-Class IPO – Caixin Global

China’s High-Tech Board OKs First Dual-Class IPO – Caixin Global

By Blair Morris

October 16, 2019

China’s A-share market is set to reach another milestone after regulators concurred to the very first initial public offering (IPO) by a business with a dual-class share structure, part of efforts to tempt technology business to the country’s brand-new Nasdaq-style modern board rather of noting overseas.

UCloud Technology Co., Ltd, a Shanghai-based cloud services service provider, has actually gotten the thumbs-up from the Shanghai Stock Exchange to list on the STAR Market, the stock market announced(link in Chinese) on Friday. The approval comes nearly 6 months after the business submitted its application for an IPO. UCloud still needs to go through the registration treatment with the China Securities Regulatory Commission prior to it can note.

The brand-new STAR Market, likewise called Science and Technology Development Board, which opened in July, has actually ended up being a testing ground for reforms to make domestic stock exchange more attractive for innovative business in emerging markets. It has actually adopted a new IPO system based upon a registration system rather than regulative approval and is the only board to allow dual-class listings.

Many innovation business, including Facebook Inc. and Chinese e-commerce giants Alibaba Group Holdings Ltd. and JD.com Inc., use shareholding structures with weighted voting rights (WVR) to allow their founders to maintain control after they note their business. Permitting IPOs with dual-class shares may give Shanghai a better shot at contending against abroad stock exchanges such as Hong Kong and New York.

Innovation drain

UCloud’s three co-founders– CEO Li Xinhua, Chief Innovation Officer Mo Xianfeng and Chief Operating Officer Hua Kun– in between them hold practically 27%of UCloud’s overall shares but 65%of the voting rights because they hold Class A shares, according to the business’s most current prospectus(link in Chinese) launched this month. After listing, the 3 Class A shareholders may hold a combined 19.4%of total shares and 54.6%of voting rights, if the IPO is totally subscribed, the prospectus said.

The founders formerly collaborated from 2005 to 2009 at web huge Tencent Holdings Ltd., which runs the WeChat social networks platform, before ultimately teaming up to form UCloud in2012 The business provides cloud storage and information analytics services to online gaming and e-commerce operators.

China has actually long looked for to lure domestic innovation unicorn business to list in the house, but a restriction on dual-class share structures pressed a lot of the best-known Chinese innovation enterprises, including Alibaba and Tencent, to raise capital abroad.

Hong Kong Exchanges and Cleaning Ltd., which operates the city’s stock market, reversed its ban on WVR companies in April 2018 after years of debate and the loss of Alibaba’s $25 billion IPO to the U.S. in2014 However mainland exchange regulators in July 2018 decided that such stocks would be briefly left out from the Stock Link programs, pointing out mainland financiers’ absence of understanding of such assets and related threats, although in August this year they published draft guidelines to get ready for lifting the restriction.

UCloud’s revenue grew 41%in 2015 to 1.19 billion yuan ($167 million), according to its prospectus. It became profitable in 2017, and in 2015 posted a net earnings of 77 million yuan. But net profit in the very first half of 2019 plunged 84%year on year to 7.78 million yuan, a drop the company credited to “reducing prices, increasing expenses and slowing industry development.” It likewise warned that the decrease will continue for the rest of the year and into 2020, perhaps pressing the company into the red.

Contact press reporter Timmy Shen(hongmingshen@caixin.com, Twitter: @timmyhmshen)

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About Blair Morris