Artificial Intelligence software developer SenseTime has pulled the plug on its US$767 million initial public offering in Hong Kong, after the U.S. government added it to its sanctions list. In its stock exchange filing today, the company says it still plans to go public. But its imminent stock sale is cancelled, and it will refund all deposits made on the shares.
Hong Kong-based SenseTime protests its inclusion on the Chinese Military-Industrial Complex Companies List, which is compiled by the U.S. Treasury Department. SenseTime was due to set the price for and declare interest in its offering this Thursday. It will now delay the IPO for an as yet undetermined amount of time, and publish a supplemental prospectus to reflect its new realities. Investors will get their deposits back on or before Wednesday.
U.S. citizens and entities are barred from owning any securities offered by companies on the Treasury Department list. The prohibition takes place 60 days after the announcement of a company's addition to the list.
The issue becomes a problem for U.S. investment banks, asset managers and fund providers. Companies that issue exchange-traded funds based on indexes that contain such companies could be found to be in violation of the law. So index providers and ETF managers alike have scrambled to adjust and remove such companies from the indexes.
The scrapping of the SenseTime IPO is a sign that the political pressure works in both directions across the Pacific. Didi Global (DIDI) has declared that it will delist from the New York Stock Exchange after a disastrous IPO, its share price falling 54.1% after the Chinese government penalized it over data security concerns.
Friday, December 10, was International Human Rights Day. The U.S. Treasury Department marked the occasion by adding 15 individuals and 10 entities to its sanctions list, judging that they are connected to human rights abuses.
Separately, it took the action against SenseTime, the only company to be added to the Chinese Military-Industrial Complex Companies List. The Treasury Department says SenseTime's inclusion is due to the "malign use" of technology to enable human rights abuses.
SenseTime defends itself that it strongly opposes the accusations, which it says are unfounded and based on a "fundamental misperception" of the company. The company says it is "committed to promoting sustainable, responsible and ethical use of AI." It says its tech is developed by scientists and practitioners "with an aim to use technology to improve people's lives."
However, the company does say it abides by all local laws and regulations in the jurisdictions in which it operates. So anything the Chinese Communist Party says, goes...
SenseTime's wholly-owned mainland subsidiary, Shenzhen SenseTime Technology, has developed facial-recognition software that can target people based on ethnicity. The company has boasted on patent applications that its programs can identify Uighur people even if they are wearing beards, sunglasses and masks.
China has deployed some of the world's most-advanced and intrusive technology to police its westernmost province, Xinjiang. The Uighur people, who are mainly Muslim, and other minorities have been targeted for detention in concentration camps dubbed "re-education" centers, and persecuted in a multiple of ways, including the separation of families, forced labor and even, allegedly, forced sterilizations. It's cultural genocide.
Two Chinese officials were sanctioned in this new list for their actions in Xinjiang. Other foreign nationals were penalized for their participation in alleged human rights abuses in Bangladesh, Myanmar and of North Korean citizens, some of the people newly on the list working in Russia or China.
SenseTime had planned to sell 1.5 billion shares priced between HK$3.85 and HK$3.99. It had slashed the size of the offering from a planned US$2 billion target but was still looking to raise as much as HK$5.985 billion (US$767 million).
Former president Donald Trump signed Executive Order 13959 into being on November 12, 2020, demanding that the U.S. government address the threat to national security from investment into securities that benefit companies linked to or run by the Chinese military.
President Joe Biden then modified the order on June 3 this year, expanding the scope to cover China's "military-industrial complex" and "military-civil fusion strategy." The new order also covers companies that make or supply surveillance equipment anywhere in the world that leads to repression or human rights abuses. U.S. entities are barred from investing in such companies.
