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Tech firms, backed by industry giants, line up for IPO frenzy over next 18 months

There is likely to be a rash of new technology sector initial public offerings (IPOs) over the next 12 to 18 months, especially by companies already backed by China’s technology giants Alibaba and Tencent, following the strong equity market performance this year.

Research firm CB Insights says that out of the 46 “unicorns” in China, 21 are backed by China’s Big Four internet giants, Alibaba, Baidu, JD.com, and Tencent or their affiliates, such as Ant Financial.

A unicorn is a start-up firm valued at more than US$1 billion.

And it adds that China’s tech leaders are still pouring money into venture-capital-backed firms right across Asia.

Tencent Holdings, for instance, made over 30 investments in venture-capital-backed tech firms in the region between the first quarter of 2016 and the first quarter of this year.

While there are few signs yet that Alibaba or Tencent are in any rush to cash in their investments, buoyant market conditions are driving mainland firms, including those operating in the technology sector, back to the markets for more capital.

E Zhihuan, chief economist at Bank of China Hong Kong (BOCHK) said the signs are good that tech IPOs will pick up strongly.

“The stock market sentiment is relatively upbeat, supported by a low interest rate environment and recent inclusion of A shares in MSCI’s key emerging markets index,” E said, adding that the slowing of regulatory approval for IPOs in mainland China is also a driver.

Hong Kong’s stock market benchmark, the Hang Seng Index, is up 18 per cent in the year so far while the MSCI International World Index has gained 10 per cent.
BOCHK estimates total funds raised by IPOs in Hong Kong could reach HK$190 billion this year, compared with HK$194.8 billion last year.

Likely to come to market in coming months are a number of tech IPOs, which are already backed by Alibaba or Tencent:

  • Best, a Chinese logistics company backed by Alibaba, said this week it aims to join the fray against the mainland’s five largest express delivery firms by raising up to US$750 million from an IPO in New York, betting an e-commerce boom in China will spur demand for its package delivery services and supply chain technology;
  • ZhongAn Online Property and Casualty Insurance, the first online-only insurer in China, could also be set to list its shares in Hong Kong this year, raising up to US$2 billion. Its major shareholders include Alibaba’s financial-services affiliate Ant Financial, which has a 16 per cent stake, as well as Tencent, and Ping An Insurance;
  • China Reading, the country’s largest online publishing and e-book company, plans to raise up to US$800 million in an IPO, possibly in Hong Kong. The Tencent-backed firm has about 600 million registered readers across its nine reading platforms and about 70 per cent of the company’s revenue comes from reading apps and sites;
  • Sogou, China’s third-biggest search engine, has said it is likely to seek an IPO with a valuation of as much as US$5 billion this year. Backed by Tencent and Sohu.com, its chief executive Wang Xiaochuan told Bloomberg the firm plans to use part of the IPO proceeds to improve search results by investing in artificial intelligence and machine-learning technologies; and
  • Ant Financial, the online finance arm of Alibaba has said it is likely to seek an IPO, although the venue is still unknown. The company is valued at US$60 billion following its US$4.5 billion fundraising round last year. Jack Ma Yun, Alibaba’s founder, said last year that Ant Financial focuses on serving the under banked and unbanked in developing countries.

Source: South China Morning Post

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