SenseTime shares fall almost 50% after lock-up expires

Shares in China’s most valuable artificial intelligence company SenseTime plunged more than 50 per cent in Hong Kong as its lock-up period expired and some pre-initial public offering investors withdrew their profits following a March rebound.

SenseTime was forced to postpone its initial public offering when the US put it on an investment blacklist over its alleged links to the Chinese military. With state backing, it revived the share float plan and raised about $740mn in Hong Kong in December.

The company’s shares fell as low as HK$2.90 (US$0.37) in the morning trading session on Thursday, their lowest-ever level and well below the listing price of HK$3.85. A lock-up on a portion of the company’s stock owned by cornerstone investors and shareholders expired on Wednesday.

Chinese tech equities dropped this week as some investors started selling their shares after a rebound from lows in mid-March. Naspers, the prominent Tencent backer, said it would further cut its stake in the Chinese tech group this week as it seeks to finance a buyback to bolster its struggling share price.

“Today’s [SenseTime] selling appears to be purely a function of the lock up expiry,” said Brian Freitas, an analyst with Periscope Analytics. “China tech is down a lot over the last six months and the pre-IPO investors and cornerstone investors are just trying to exit their positions.”

But the dumping risk is higher for companies such as SenseTime, whose shares US investors are barred from owning because of the blacklist, said Freitas. “The shareholder base is not as broad as it would be for other stocks.”

Some state investors dumped their holdings in the company after coming under pressure to not record a loss on state-backed positions, an investor familiar with the situation said. A loss on state assets can impact the career and political prospects of executives in China.

SenseTime counts state-backed Mixed-Ownership Reform Fund and Shanghai local government fund Xuhui Capital among its largest cornerstone investors.

SenseTime said in a statement that its management team had confidence in its long-term value and prospects, while a few of the company’s founding figures decided to extend the lock-up period of their holdings until the end of the year.

Yet the selling pressure could persist, with another block of shares owned by SenseTime’s shareholders to expire by December 29, according to company filings.