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The IPO filing by SenseTime is a bold move at a time when the company is put on the U.S. Entity List which is a likely factor to dampen investor and customer confidence.
One of China’s most valued and leading Artificial Intelligence firms SenseTime Group Inc, headquartered in Hong Kong, filed for an Initial Public Offering (IPO) on the Hong Kong exchange. Although the company has not revealed any numbers, some sources believe it to be around $2 billion in total valuation. As per a Bloomberg report, Haitong Securities, China International Capital Corp and HSBC Holdings Plc were the offering’s joint sponsors.
SenseTime, backed by giants like Alibaba and SoftBank, creates AI software platforms covering but not limited to facial recognition, autonomous driving technology and video analysing. Observing an impressive 91.8% YOY growth in 2021, SenseTime amassed total revenue worth $255.4 million.
Although the company has made major strides in the AI industry and has exploited the demand for AI in Covid times, a number of problems plaguing the company could hinder its overall performance. SenseTime helped the country with developing facial recognition software in order to enforce strict lockdown measures with respect to mask-wearing and temperature detection. However, no matter how competent the company is or how conducive the conditions are, it has to face a couple of challenges in its journey towards future growth.
Challenges faced by SenseTime amid Its IPO Plans
China’s Growing Regulatory Environment
Policy uncertainty is the reality of the day in China with its intense regulations on the tech sector. Beginning in November 2020 when the country suspended fintech Ant Group’s IPO, soon regulations were introduced in various sectors like anti-monopoly laws as well as data security and protection.
These regulatory actions led to a lot of investigations and punishments among the tech sector in later months. The $2.8 billion fine slapped on e-commerce giant Alibaba following an anti-monopoly probe carried against it illustrates the previous statement. SenseTime is completely aware of these financial, legal and operational consequences in the event of compliance failure and therefore alert at all times. However, a silver lining to this regulatory mess is the reduction in the price of Chinese tech stocks; a good time for investors and retail buyers.
Part of US Entity List
US blacklisted SenseTime in 2019 under their Entity List which bars the target company’s access to US-origin technologies. For a tech-based company like SenseTime, this is a huge loss capable of shutting down a number of high-end capabilities the software could have developed in the absence of it. The reason given by the superpower was SenseTime’s involvement in human rights violations with respect to Xinjiang’s minority Muslim groups in areas of surveillance, detention and repression of the minorities. SenseTime has refuted these allegations and agreed to the consequences of the same. It would also be interesting to see how US-based investors work around these challenges to participate in the IPO.