(WSJ) Kuaishou Technology has its eyes on the world’s biggest initial public offering in more than a year, seeking to raise about $5 billion from a Hong Kong share sale as short-video and live-streaming apps surge in popularity in China.
Kuaishou—which competes with ByteDance Ltd., the rival Chinese company behind TikTok and its sister app Douyin—started taking investor orders Monday. With the offering, which could value it at more than $60 billion, Kuaishou is joining a string of tech companies from China that have listed in Hong Kong.
Within hours, orders exceeded the shares on offer to institutional investors, according to a person familiar with the situation.
Kuaishou, which means “fast hand” in Chinese, is backed by Tencent Holdings Ltd. Shares in Tencent leapt 11% Monday to close at a record high.
Both Kuaishou and ByteDance have capitalized on growing demand from younger Chinese people to watch and record short videos on their smartphones. Its namesake short-video platform is the world’s second-largest, according to data cited in its prospectus, and its services in China had 305 million average daily active users in the nine months ended September.
“Short-form video on social-media apps is a multiyear phenomenon,” said Marco Li, a Hong Kong-based portfolio manager at TT International, which at the end of 2020 managed $8.8 billion of emerging-market stocks. Mr. Li said Kuaishou has enormous growth potential, because it is just starting to use its platforms to make money from advertising and e-commerce.
Kuaishou’s listing document says it is looking to diversify into areas beyond advertising and e-commerce—such as online games—for revenue. It is more domestic in focus than ByteDance, though it has ventured into some foreign markets. Its Kwai app, for example, is popular in Brazil.
Revenue in the first nine months of 2020 hit 40.7 billion yuan, the equivalent of $6.3 billion, up 49% from a year earlier. But Kuaishou swung to an operating loss of 8.9 billion, as it spent more on sales and marketing to attract users and build up its brand.
With a minimum deal size of $4.95 billion, the IPO would be the largest in the world since late 2019, when state-controlled Saudi Arabian Oil Co., commonly known as Aramco, raised $29.4 billion, Dealogic figures show.
At the top of the range, the deal implies a market capitalization of $60.9 billion. Kuaishou was valued at $28.6 billion last February after obtaining $3 billion in funding from a Tencent-led consortium, according to PitchBook, a data provider.
Kuaishou takes a more democratic approach than rival services, saying its systems deliberately show users a broader range of videos, rather than just content from star creators. Its prospectus says that nearly 40% of videos get more than 100 views and that its co-founder, Cheng Yixiao, believes Kuaishou should be somewhere that “champions ordinary people.”
Still, the listing document also highlights a few creators who have achieved widespread popularity, including a young inventor who goes by “Hopeless Edison,” a couple farming cordyceps fungi in Sichuan province, and a British professor based in Beijing who performs chemistry experiments online.
Hong Kong is experiencing a listings boom, with many Chinese startups shunning U.S. markets to raise funds in the city instead, and several U.S.-listed Chinese companies obtaining secondary listings there. Last year Hong Kong’s IPOs and secondary listings totaled $51.6 billion, according to Dealogic, the most since 2010.
This year, the Hong Kong stock market has also been buoyed by growing inflows from mainland Chinese investors. On Monday, Hong Kong Exchanges and Clearing, the parent company of the city’s stock exchange, surged 8.3% to close at a record high.
Kuaishou is selling 365.2 million new shares at an indicative range of 105 to 115 Hong Kong dollars, the equivalent of $13.54 to $14.83, according to a term sheet seen by The Wall Street Journal. It plans to fix the offer price on Jan. 29, and for its shares to start trading on Feb. 5.
The offering size could increase to up to $6.2 billion if underwriting banks exercise an option to sell 15% more shares.
Dennis Wu, senior partner at online brokerage Futu Securities, one of the IPO’s lead managers, said his firm plans to offer HK$25 billion, the equivalent of $3.2 billion, to individual investors who want to borrow to subscribe to the IPO. The part of the deal reserved for small investors opens for orders on Tuesday.
“This is a hot deal,” said Mr. Wu—in part, he explained, because Kuaishou is the first Chinese short-video platform operator to list in Hong Kong. Media reports have previously suggested ByteDance could also float Douyin in the city.
Kuaishou has secured 10 cornerstone investors, including Capital Group, Temasek, BlackRock Inc., Canada Pension Plan Investment Board and Boyu Capital. They agreed to buy a combined $2.45 billion worth of the stock wherever the deal prices.
Units of Morgan Stanley, Bank of America Corp. and China Renaissance Holdings Ltd. are acting as joint sponsors for the deal.
Source: Wall Street Journal by Joanne Chiu
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