Sep 30, 2019 08:07 PM

China’s High-Tech Board OKs First Dual-Class IPO

UCloud's headquarters in Shanghai on April 8. Photo: IC Photo
UCloud's headquarters in Shanghai on April 8. Photo: IC Photo

China’s A-share market is set to reach another milestone after regulators agreed to the first initial public offering (IPO) by a company with a dual-class share structure, part of efforts to lure technology companies to the country’s new Nasdaq-style high-tech board instead of listing overseas.

UCloud Technology Co., Ltd, a Shanghai-based cloud services provider, has received the green light from the Shanghai Stock Exchange to list on the STAR Market, the stock exchange announced (link in Chinese) on Friday. The approval comes almost six months after the company submitted its application for an IPO. UCloud still needs to go through the registration procedure with the China Securities Regulatory Commission before it can list.

The new STAR Market, also known as Science and Technology Innovation Board, which opened in July, has become a testing ground for reforms to make domestic stock markets more attractive for innovative companies in emerging industries. It has adopted a new IPO mechanism based on a registration system rather than regulatory approval and is the only board to allow dual-class listings.

Many technology companies, including Facebook Inc. and Chinese e-commerce giants Alibaba Group Holdings Ltd. and Inc., use shareholding structures with weighted voting rights (WVR) to enable their founders to retain control after they list their companies. Allowing IPOs with dual-class shares may give Shanghai a better shot at competing against overseas stock exchanges such as Hong Kong and New York.

Technology drain

UCloud’s three co-founders – CEO Li Xinhua, Chief Technology Officer Mo Xianfeng and Chief Operating Officer Hua Kun – between them hold almost 27% of UCloud’s total shares but 65% of the voting rights because they hold Class A shares, according to the company’s latest prospectus (link in Chinese) released this month. After listing, the three Class A shareholders may hold a combined 19.4% of total shares and 54.6% of voting rights, if the IPO is fully subscribed, the prospectus said.

The founders previously worked together from 2005 to 2009 at internet giant Tencent Holdings Ltd., which operates the WeChat social media platform, before eventually teaming up to form UCloud in 2012. The company provides cloud storage and data analytics services to online gaming and e-commerce operators.

China has long sought to lure domestic technology unicorn companies to list at home, but a ban on dual-class share structures pushed many of the best-known Chinese technology enterprises, including Alibaba and Tencent, to raise capital abroad.

Hong Kong Exchanges and Clearing Ltd., which operates the city’s stock exchange, reversed its ban on WVR companies in April 2018 after years of debate and the loss of Alibaba’s $25 billion IPO to the U.S. in 2014. But mainland exchange regulators in July 2018 decided that such stocks would be temporarily excluded from the Stock Connect programs, citing mainland investors’ lack of understanding of such assets and related risks, although in August this year they published draft rules to prepare for lifting the restriction.

UCloud’s revenue grew 41% last year to 1.19 billion yuan ($167 million), according to its prospectus. It became profitable in 2017, and last year posted a net profit of 77 million yuan. But net profit in the first half of 2019 plummeted 84% year on year to 7.78 million yuan, a drop the company attributed to “lowering pricing, rising costs and slowing industry growth.” It also warned that the decline will continue for the rest of the year and into 2020, possibly pushing the company into the red.

Contact reporter Timmy Shen (, Twitter: @timmyhmshen)

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