By
Godfrey Benjamin
October 13th, 2023
Following acceptance by the CSRC, Fourth Paradigm should proceed with launching its IPO in the Hong Kong market.
Chinese artificial intelligence (AI) company Fourth Paradigm Technology has completed the process required for an initial public offering (IPO) in Hong Kong. The company has now received a regulatory green light from the China Securities Regulatory Commission (CSRC).
Fourth Paradigm is one of only a few companies to receive the green light from the CSRC this year after the Commission instituted new rules for offshore listings. Introduced in February, the rules became effective from March 31 and provided clarity for companies interested in overseas IPOs. As of June 15, the CSRC had received filings for offshore IPOs from 14 companies and was reportedly waiting for 38 others.
According to the new rules, Fourth Paradigm and other companies looking for foreign IPOs must file with the CSRC first. In addition, each of these companies must receive approval from other regulators. These regulators are now involved in the VIE (variable interest entity) process Chinese companies use to list overseas. Agencies that could potentially be involved in the process include the National Development and Reform Commission and the Cyberspace Administration of China (CAC).
Fourth Paradigm’s IPO nod dissolves some uncertainty surrounding adherence to the new rules and the difficulty of listing abroad. Upon announcing the new rules, the CSRC said that any firm in violation could pay a fine of up to 10 million yuan, about $1.5 million. This fine also applies to any persons or companies who share wrong information.
China’s Crackdown on Foreign IPOs
China has always been particular about offshore listings, although they were much easier. Even before adopting the rules, the CAC – China’s cybersecurity regulator – requires firms holding personal data of at least 1 million users to apply for a cybersecurity review before an offshore IPO.
This was why the CAC slammed transport company Didi with a $1.19 billion fine last year. Didi reportedly did not complete a cybersecurity review before listing on the New York Stock Exchange (NYSE). The CAC also fined Didi founder Cheng Wei and president Jean Liu, 1 million yuan each.
Fourth Paradigm Filed for the Hong Kong IPO in March
The current attempt at an IPO is Fourth Paradigm’s fourth after previous ones failed. Founded in 2014, Fourth Paradigm filed for an IPO in August 2021 and in February 2022, with both attempts expiring for unidentified reasons. The startup filed the fourth attempt in March, only a few days before the third attempt – filed last September – was to expire.
Fourth Paradigm was sanctioned by the US and placed on the Commerce Department’s Entity List in March. Companies on this list need a license to buy or access specific goods, services, or technologies. Following its addition to the list, Fourth Paradigm allayed public fears. The company clarified that the inclusion “should not have a material impact on the business or operations of the group”. Fourth Paradigm company also said none of its suppliers, customers, or investors, have withdrawn their commitments to the company.