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Kuaishou IPOs in Hong Kong instead of US after trade war

From left to right, the flags of the Stock Exchange of Hong Kong, China and Hong Kong are seen fluttering in the wind on May 6, 2019.

Anthony Wallace | AFP | Getty Images

Venture capital firm DCM just generated a return of $ 16 billion from the IPO of Chinese social media app Kuaishou. Listing took place in Hong Kong rather than the United States, and DCM co-founder David Chou expects China’s top tech start-ups to follow suit.

The main reason, Chou says, is four years of “political denigration” of Chinese companies by the Trump administration.

“You’ve had this heightened adversarial relationship between the United States and China,” said Chou, whose 25-year-old company supports start-ups in the United States, China and Japan. Between Trump’s shelling of Huawei and the promise to take some Chinese companies off the list, “it really made Chinese companies rethink their IPO in the United States,” Chou said.

In the past, US stock exchanges have been very competitive in attracting large Chinese companies. The country’s two largest e-merchants, Alibaba and JD.com, were floated on the Nasdaq in 2014. They were preceded years earlier by internet company Baidu, gaming platform NetEase, and website from Ctrip trip (now Trip.com).

But the trend has drifted away from the United States, as China’s biggest tech successes choose to stay closer to home. Hong Kong is the world fourth largest exchange in terms of total market capitalization of listed companies, behind the New York Stock Exchange, the Nasdaq and the Shanghai Stock Exchange.

Hong Kong was gaining strength even before the Trump-China trade war, Chou said. The last four years have just accelerated it.

In January, the NYSE responded to an executive order by then President Trump, signed in November, prohibiting Americans from investing in 31 companies identified by the Defense Department as “Communist Chinese military” companies. That list included NYSE companies China Telecom, China Mobile and China Unicom, all of which are co-listed in Hong Kong.

Whatever approach the Biden administration takes, Chou expects Hong Kong to stay strong because “companies see they can go public in Hong Kong and be just as big.”

Kuaishou, which works the same as the short video app TikTok, was the last big tech company to go public in Hong Kong, after shopping site Meituan and smartphone maker Xiaomi in 2018. Tencent Music is preparing a $ 5 billion bid to Hong Kong after its first IPO on the NYSE in 2018, a move made by Alibaba in 2019 and NetEase last year.

Ele.me drivers belonging to Meituan and Alibaba on their way to deliver items to customers in Guangzhou, China.

Arjun Kharpal | CNBC

Kuaishourais took in 41.28 billion Hong Kong dollars ($ 5.32 billion) during its IPO and jumped nearly 200% when it debuted on February 5. It continued to climb, closing last week at HK $ 398, giving the company a market cap of around $ 210. billion.

DCM converted an investment of around $ 50 million into a stake now worth around $ 16 billion. It is a space that the firm knows well. He also invested in Musical.ly, which Bytedance bought in 2017, then stopped to move users to TikTok.

TikTok also found itself at odds with the Trump administration, which threatened to shut down the service last year. The ban was never implemented and Biden is looking into the matter.

Chou said Kuaishou discussed the US publicity before deciding that “Hong Kong was best for them.” He said one of the determining factors was that Chinese internet giant Tencent, which held its IPO in Hong Kong, is a major investor.

“Tencent had a great run in the Hong Kong market,” Chou said.

LOOK: Kuaishou’s debut shows ‘the technology game is not over’

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