Earlier this year, Chinese mining hardware manufacturers Ebang, Bitmain, Canaan Creative applied to sell shares on the Hong Kong Stock Exchange (HKEX). However, according to an anonymous source via CoinDesk, HKEX seems unsure of whether they should approve the Bitmain initial public offering (IPO):
“The exchange is very hesitant to actually approve these bitcoin mining companies because the industry is so volatile. There’s a real risk that they could just not exist anymore in a year or two. The HKEX doesn’t want to be the first exchange in the world to approve this and have one die on them.”
Questioning The Market
This hesitance is understandable, especially considering 2018’s bear market. That said, Bitmain isn’t just any mining hardware company. Last year, the firm totaled $2,517,719,000 in revenue. It generated $1.1 billion in profit quarter one of this year as well, according to CoinDesk. Bitmain is a force of nature within the market, which is why the HKEX application is so important. If the exchange can’t even be sure of such a powerful company, who can they list?
To apply for an IPO in Hong Kong, one must fill out a draft prospectus. Once done, the exchange and the company will talk with each other to establish a decent understanding. Should the application see approval by the HKEX, it must also pass the Securities and Futures Commission (SFC) guidelines. If both groups are happy, everyone proceeds to a listing hearing in which sizes, prices, and other information are confirmed and released to the public.
Yet, if it has been six months without getting to the listing hearing, an application will not be active anymore. The applicant can still go back to it, however. Canaan’s file has already lapsed, while Ebang’s is only two weeks away from doing so. Bitmain still has another three months.
“Right now, I don’t think that any of them could make it to the listing hearing,” claims CoinDesk’s source. “If either one doesn’t approve it, you can’t make it to the listing hearing.”
Suggested Reading : Learn what it takes to solo mine Bitcoin.
According to lawyers familiar with HKEX, their resistance to Bitmain’s acceptance is unsurprising.
Ivy Wong, a partner of Baker McKenzie in Hong Kong, stated that HKEX places great importance on “suitability and sustainability of the business and how risky the business is for retail investors.” She continues, “I have seen cases where the applicants could satisfy the basic listing requirements for the three years’ track record but did not manage to convince the HKEX that its business is sustainable, and the HKEX was reluctant to grant a listing approval.”
Another partner, Frank Bi with Ashurst, made similar claims. Bi asserts that market volatility alongside Bitmain’s failure to publish their financial data of Q3—about the time crypto prices fell hard—has contributed to HKEX’s uncertainty. The CoinDesk source echoed this sentiment:
“What they are doing is they are just dragging the case right now. If the market continues going up, the exchange may be pressured to approve the cases because how well the entire industry is doing. But because the market is down, these companies really have to justify [how] this industry is sustainable.”
Rebranding Their Approach
Some companies try to appeal to HKEX by glorifying their business models a little more than they should. Bitmain’s application claims the company is a “strong contender in the AI chip industry.“ A direct quote from the file:
“Riding on our success and expertise in ASIC chip design and powerful research and development capabilities, we have extended our focus to the revolutionary field of AI and have achieved promising results.”
The source calls this out, stating that these companies are simply hardware creators. Should crypto mining fall out of fashion, so will these groups. “It is likely that crypto mining-related activities and crypto holdings still comprise a majority part of their revenue,” adds Bi.
Additionally, these groups tend to hold large amounts of cryptocurrencies which are reported in overall company value. Because of the massive drop this year, who knows how much value has been lost? This would cause regulators to look even more carefully into prospective listings.
These companies don’t need to go public to survive, however. Bitmain and other manufacturers have made so much money that they’re going to be fine for the foreseeable future. For example, filings report that Bitmain’s two founders, Ketuan Zhan and Jihan Wu, made a respective $22.7 million and $20.4 million in bonuses from last year despite their annual salaries being set at $27,000.
Wong claims that there isn’t any one reason for companies to apply for an IPO:
“My guess is that their reasons are likely mixed, coupled with a desire to set market precedent and be the first mover in the market. It is, in any event, an exciting thing to see that it is able to provide investors with more investment options and satisfy the different risk appetites in the market.”
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