AI startup Megvii delays IPO to 2020: reports

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US China Trade war AI technology

Artificial intelligence (AI) firm Megvii has delayed its Hong Kong listing until next year following additional queries from the stock exchange as it prepares to go public, Nikkei Asian Review reported.

Why it matters: Megvii was one of several Chinese AI companies added to the American so-called Entity List in October for alleged complicity in human rights violations in China.

  • The world’s most valuable AI startup Sensetime, speech recognition firm iFlytek, surveillance equipment manufacturer Hikvision, and AI company Yitu were also included in the blacklisting.
  • The ban has investors worried as it effectively bars the companies from doing business with American firms, cutting them off from purchasing US-made components.

Details: Megvii had initially timed its initial public offering (IPO) to take place before the end of the year. However, the company decided to push the date to next year after additional scrutiny from the Hong Kong stock exchange, according to separate reports from Nikkei Asian Review and International Financing Review.

  • The company was questioned about the adequacy of its risk disclosures related to US sanctions in its IPO filing.
  • Megvii filed for a Hong Kong listing in August but was mulling a delay prior to queries from the bourse.

Context: Megvii was expected to become the first of China’s AI startups to go public. The company would have acted as a litmus test of sorts, paving the way for other companies in the industry.

  • Megvii has also faced scrutiny in Taiwan, where the government planned to investigate the company following the ban after it was awarded a contract to install a security system at Taichung Power Plant.

Bottom line: Potential investors are hesitant about buying shares in Megvii after the blacklisting. The company may have trouble hitting a $3.5 billion valuation, a source previously told Bloomberg. The company was valued at $4 billion in its latest funding round.