Kingsoft Cloud is considering a Nasdaq IPO, in a $450 million bet that anti-China sentiment is a tempest in a teapot

06-May-2020 Intellasia | South China Morning Post | 6:02 AM Print This Post

Kingsoft Cloud, the cloud storage subsidiary of one of China’s biggest computer software developers, is eyeing an initial public offering (IPO) on the Nasdaq, pitching to tap the US capital market just as the Trump administration is drumming up a steady beat of hostility against Chinese companies.

The Beijing-based unit of Kingsoft Corporation plans to sell up to 25 million American depository shares at between $16 and $18 each, raising up to $450 million, after conducting its investor roadshow last month, said a source close to the company.

There will be an overallotment option, known as a greenshoe, to sell an additional 3.75 million ADS in a deal underwritten by JPMorgan, UBS, Credit Suisse and China International Capital Corporation (CICC), according to a preliminary prospectus filed to the Securities and Exchange Commission earlier Monday. The final offer price is expected on May 7.

“There will always be a pipeline of Chinese companies which would prefer a listing in the US over Hong Kong and China, as the US presents a better option for [smaller] issuers due to their better liquidity for smaller-cap companies,” said Jeffrey Sun, a partner at the law firm Orrick in Shanghai.

Kingsoft Cloud’s timing coincides with a looming tempest in US-China relations, which has deteriorated to a multi-year low as officials of both sides exchange blame for being the origin of the global coronavirus pandemic, which has afflicted 3.5 million people around the world with one in three confirmed cases in the US and claimed 251,000 lives.

US president Donald Trump is reportedly considering a plan to ban as much as $50 billion of US federal savings from being transferred to a portfolio of stocks benchmarked against the MSCI All Country World Index, with less than 5 per cent of the allocation going toward Chinese stocks.

WiMi Hologram Cloud, the platform that provides augmented reality content, raised $26.1 million last month on Nasdaq, the sole Chinese company to tap the US growth market for capital. Since then, Chinese stock market applicants in the US have dwindled with the worsening of the coronavirus pandemic in the US, and with unfolding accounting scandals at Luckin Coffee and TAL Education.

A successful IPO by Kingsoft Cloud, whose Hong Kong-listed parent first disclosed about the spin-off and separate listing plan last December, could provide early signs of investors’ confidence returning to selective Chinese companies, bankers said.

Based on the price range, Kingsoft Cloud’s market capitalisation is expected to be between $4 billion to $4.5 billion, assuming that the overallotment option is not exercised, according to the company’s statement after an 18 per cent revision in an earlier range. The cloud company’s shareholders Kingsoft Group and Xiaomi have expressed interests in buying up to $25 million and $50 million worth of ADS respectively.

After the IPO and excluding these potential new investments, Kingsoft Group’s stake in the cloud service unit will be reduced to 46.8 per cent from 53.7 per cent, while Xiaomi’ stake reduced to 13.8 per cent from 15.8 per cent. French asset manager, Carmignac Gestion, is also listed as one potential investor interested in buying up to $50 million worth of ADS, according to the preliminary prospectus, “subject to certain limitations”.

“Given the current market volatility and the coronavirus, the presence of anchor investors definitely would help the success of IPO,” said Sun. “Investors looking at potentially investing in the deal would view that they are following the smart money if the deal is supported by anchor investors.”

Some industry participants however still see that US investors’ scepticism against Chinese issuers have not eased, as investigations from both Chinese and US securities regulators are ongoing on Luckin Coffee.

A source at a technology firm which helps investment banks’ equities and bond offerings said he has seen more Chinese companies opting for a Hong Kong listing in recent weeks, instead of a US one.

The few accounting scandals and frauds associated with some of the US-listed Chinese companies in April has dampened sentiments around Chinese issuers, he said.

In April, Luckin Coffee admitted that its employees had fabricated sales amounting to 2.2 billion yuan. Soon after TAL Education, a Beijing-based operator of tuition centres listed on the New York Stock Exchange, also disclosed about certain sales inflation by its employee.

Kingsoft Cloud said it expects net proceeds to total about $392 million, the bulk of which It plans to spend on upgrading existing infrastructure and investing in technology.

The S&P 500 was up 12.7 per cent in April, while Nasdaq Composite gained 15.4 per cent last month.

https://sg.news.yahoo.com/kingsoft-cloud-considering-nasdaq-ipo-070642964.html

 

Category: China

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