Cloud Services Provider Pumps Up IPO Fundraising Target

Cloud services provider Kingsoft Cloud Holdings Ltd. has sharply boosted the fundraising target for its New York IPO, in what could become one of the year’s biggest offerings by a Chinese tech company and the largest since two accounting scandals involving peers last month.

Kingsoft said it plans to sell 25 million American depositary shares (ADSs) for between $16 and $18 each, which could raise up to $450 million, according to an updated prospectus filed on Monday. If demand is strong and the underwriters exercise an overallotment option, total funds raised could reach up to $517 million, it added.

The latest goals are sharply higher than the original $100 million that Kingsoft Cloud announced as its fundraising target when it made its initial public filing last month.

The strong demand reverses a trend toward the end of last year, when Chinese companies, many of them money-losing, often had to slash their fundraising targets due to tepid demand. Kingsoft Cloud is also losing money, reporting a loss of 1.16 billion yuan ($163 million) in 2019 — narrowing from a 1.75 billion yuan loss a year earlier, according to the prospectus.

The Covid-19 pandemic may be playing to the advantage of companies like Kingsoft Cloud, which offer products and services that allow people to work remotely like many are now doing, said an analyst at a midsize fund house that invests in such companies.

“I think the demand for cloud services is looking increasingly attractive given the impact on work practices following the coronavirus outbreak,” he said, speaking on condition his name not be used due to company policy. “Increasing the deal size to accelerate growth seems like good timing. Further, technology companies have been quite resilient recently, a factor likely supporting sentiment.”

While its losses are still large, Kingsoft Cloud’s revenue is also growing strongly, highlighting the big potential of the cloud services market now dominated in China by big names like Alibaba, Tencent, Amazon and Baidu. The company’s revenue grew 63% to nearly 4 billion yuan last year, and has roughly tripled over the last three years.

Kingsoft Cloud was established in 2012, and its largest shareholder is Hong Kong-listed software-maker Kingsoft Corp. Ltd. The parent company’s chairman is Lei Jun, one of China’s best known tech entrepreneurs and co-founder of smartphone maker Xiaomi.

As part of the IPO, Xiaomi has agreed to buy $50 million worth of Kingsoft Cloud’s shares, while parent Kingsoft has agreed to buy another $25 million worth. Kingsoft currently owns 46.8% of Kingsoft Cloud, while Xiaomi’s Lei holds 13.8%, according to the prospectus.

Kingsoft Cloud’s clients are concentrated in the internet and finance sectors, and include big names like short-video platform operator ByteDance and video streaming service provider Bilibili. But it relies on just a few firms for much of its revenue, notably Xiaomi, which contributed 27%, 25% and 14% of its revenues in the past three years, respectively.

The listing would be one of the first and easily the largest since a couple of accounting scandals were exposed among New York-listed Chinese companies, undermining confidence in the group as a whole.

The larger of those scandals saw Starbucks challenger Luckin Coffee Inc. disclose that nearly half of its revenue in the last three quarters of last year may have been fake, sparking a sell-off that saw its shares fall more than 80%. The other scandal saw education services provider TAL Education Group also admit that a rogue employee may have inflated revenue from one of its divisions.

Kingsoft Cloud aims to price its shares on Thursday and make its trading debut on Friday, Reuters reported.

Contact reporter Yang Ge (geyang@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)