Segway Owner Ninebot to Sell China’s First CDRs on STAR Market

Electric scooter maker Segway-Ninebot won approval Friday for an initial public offering (IPO) on China’s new Nasdaq-style high-tech STAR Market with a plan to raise more than 2 billion yuan ($293 million).

Registered in the Cayman Islands, the Beijing-based company will become the first foreign-registered enterprise with a variable-interest entity (VIE) structure to sell Chinese Depository Receipts (CDRs) on China’s A-share market. Foreign companies use VIE structures to avoid Chinese restrictions on foreign direct investment in certain industries.

Ninebot plans to issue as many as 7.04 million A shares to its custodian bank, Industrial and Commercial Bank of China, which would then sell the company’s CDRs at a ratio of 10 CDRs to one ordinary share, according to the prospectus. CDRs are shares of non-Chinese companies that trade in China in the same way that American Depositary Receipts (ADRs) allow non-U.S. companies to float shares on American exchanges.

The electric scooter maker has plans to launch a robot delivery service through a WeChat small program or an app, which is a value-added telecom business subject to restrictions on foreign direct investment. Ninebot set up the VIE structure to avoid such restrictions.

Under a VIE structure, an overseas-registered company is set up to list on overseas bourses and uses contracts to control mainland-based units that hold most of their valuable assets, including licenses. The Shanghai Stock Exchange’s STAR Market is a testing ground for acceptance of companies with VIE structures.

Even though the company’s name indicates it’s a robot maker, Ninebot’s main products are electric scooters. Ninebot acquired American personal-transporter manufacturer Segway in 2015 and is now the world’s largest supplier of electric scooters.

At a listing review meeting Friday, the review committee of the Shanghai Stock Exchange’s STAR Market required the company to take further measures to eliminate any misrepresentation of the company’s name and make sure its name and abbreviation accurately reflect the nature of the business. The review committee also asked Ninebot to take further measures to remove any loopholes in investor protections in its VIE structure.

Ninebot is backed by Chinese electronics giant Xiaomi, venture capital firm Sequoia China, Intel Corp., Singapore’s sovereign wealth fund and China Mobile Innovation Industry Fund. It has long been seen as one of the strongest candidates for a listing on the new board.

Xiaomi is also one of Ninebot’s key clients. Related-party sales to Xiaomi accounted for more than half of Ninebot’s revenue in 2019. The company has yet to turn a profit, recording a net loss of 459 million yuan in 2019. The listing review committee didn’t question the company’s related-party sales but required it to disclose its market share and explain its competitiveness.

A previous version of this story gave the incorrect number of A shares that Segway-Ninebot planned to issue. It planned to issue about 7.04 million of the shares.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com)