U.S. investors look like they'll miss out on another blockbuster initial public offering (IPO), with the owner of TikTok looking to list the Chinese version of the app in Hong Kong.
ByteDance Inc. is in talks with investment banks and internally over a Hong Kong IPO for its Douyin short-video app, Reuters reported on Monday, citing two "people familiar with the situation."
The preliminary talks have seen ByteDance executives meet bankers at several investment banks in recent weeks to discuss a potential offering after already discussing the idea internally, Reuters states.
I'd hazard a guess that ByteDance would also want to list Douyin in Shanghai at the same time as in Hong Kong. A Hong Kong listing would give the company exposure to international investors. But stocks trade at much higher premiums in Shanghai and Shenzhen, markets dominated by momentum-driven retail investors who face a dearth of high-quality listings on China's domestic markets. Douyin is only available in China.
The investment banks have begun research and analysis about the potential for a standalone listing for Douyin, Reuters reports. ByteDance declined to comment.
TikTok came under attack earlier this year from U.S. President Donald Trump and his administration, who have painted the teen-friendly app as a national security risk. This pressure still seems to me to be mainly a bid to force a sale of the business into U.S. hands.
ByteDance began life in 2012 with a TikTok precursor as well as the news headlines site Toutiao, or "headlines." ByteDance then in 2016 invented Douyin, which is simply the Chinese-language version of TikTok, the latter only available outside China. Both apps allow users to record video bursts and are wildly popular with teens, first and foremost for dance moves but also jokes, pranks and makeup tips.
Douyin crossed the mark of 600 million daily active users, the company said in August, up from 400 million at the start of the year. TikTok has crossed the 100 million mark for users in the United States and passed 100 million daily users in Europe as of September.
We are still somewhat in the dark as to what exactly is happening to TikTok. ByteDance says it is forming a new company, TikTok Global, which it says will remain a subsidiary of the Beijing-based company.
ByteDance insists it will retain 80% ownership of the new company. Oracle (ORCL) is due to take a 12.5% stake in TikTok Global, while Walmart (WMT) will own 7.5% as a commercial partner. But Oracle has said ByteDance will have no ownership in the new company.
U.S. investors would own more than half of TikTok Global, if you factor in the existing ownership of parent ByteDance. U.S. investors including venture capital funds Sequoia Capital, General Atlantic and Coatue Management together already own 40% of ByteDance. That means they own 40% of the 80% that the Beijing company says it will own in the new company, which means 32% of TikTok Global. Add in the 20% Oracle-Walmart stakes and you reach 52% ownership in U.S. hands.
That breakdown still does not explain how anyone can claim ByteDance does not own any of the company at all, however. Beijing says it will block the sale of the "special sauce" of source code, recommendation algorithms and other technology that powers Douyin and TikTok.
Trump appears to have lost interest in TikTok, given his understandable focus on the presidential election. But he likely has also realized further action against TikTok is likely to alienate younger voters.
Hong Kong has become an increasingly important market for China-focused tech stocks, having traditionally been a market built around banks, property developers and China-focused manufacturing.
Any Douyin or ByteDance listing would be a blockbuster. It would mark the third major listing to bypass U.S. markets altogether, with the two largest listings in history set to have had no U.S. component at all.
The Alibaba Group Holding (BABA) fintech spinout Ant Group is readying what's likely to be the world's largest IPO in history. The listing, slated for shortly after the U.S. presidential election, will be the first to happen simultaneously in Hong Kong and on Shanghai's Nasdaq-like STAR Market.
If the Ant Group offering breaks the US$30 billion barrier, it will surpass the US$29.4 billion raised by the Middle Eastern oil giant Saudi Aramco SSE:2222 with its listing last December in Riyadh.
Until the Saudi Aramco listing, New York was still the IPO capital. Alibaba previously held the title of history's largest IPO following its US$25 billion float on the New York Stock Exchange (NYSE) in 2014. The Chinese e-commerce giant then followed that up in November with a secondary listing in Hong Kong valued at US$12.9 billion.
But the increasing pressure on Chinese companies from U.S. authorities is encouraging them to consider listing closer to home. JD.com (JD) and NetEase (NTES) followed Alibaba with Hong Kong secondary listings, while the online travel agency Ctrip (TCOM) and the search engine Baidu (BIDU) are reportedly considering the same. Sina (SINA) , which runs the Twitter (TWTR) equivalent Weibo (WB) , is being taken private and delisting from New York, a deal expected to close in the first quarter of 2021.