Oct 20, 2020 08:30 PM

Investors Load Up on First Ever Sale of Chinese Depositary Receipts

A Ninebot electric bike store in Beijing on July 4.
A Ninebot electric bike store in Beijing on July 4.

More than two years after China’s stocks regulator unveiled a Chinese depositary receipts (CDRs) program to lure overseas-registered domestic companies to list at home, the first IPO is set to launch with massive demand for the securities.

Although tech giants including Alibaba Group Holding Ltd., Baidu Inc., and Xiaomi Corp. were touted as top candidates for the initiative, their talks with regulators floundered and the company now about to make history is little-known electric-scooter maker Ninebot Ltd. CDRs are a new type of equity security created in 2018 that allow foreign-registered Chinese firms with what’s known as a variable-interest entity (VIE) structure to list on a mainland bourse.

Investor appetite for the 12 million CDRs originally on offer in the online portion of the share sale was overwhelming. Beijing-based Ninebot received 4.5 million applications for 45.1 billion CDRs, according to a Tuesday company filing (link in Chinese) with the Shanghai Stock Exchange. The company boosted the number of CDRs available to 18 million by taking receipts from the allocation for the offline offering which was reduced to 42.5 million CDRs. Another 9.9 million CDRs were allocated to strategic investors.

The receipts were priced at 18.94 yuan ($2.8) each and were only available to investors who hold at least 10,000 yuan of shares traded on the Chinese mainland in their portfolios.

The company’s application to issue CDRs on the STAR Market, Shanghai’s Nasdaq-style high tech board, was accepted in June and it obtained the final green light from the securities regulator in September. It sold 7.04 million A-shares to its custodian bank, Industrial and Commercial Bank of China Ltd., which then packaged them into CDRs at a ratio of 10 CDRs to one ordinary share and sold them to domestic investors, the filing said. The offering represents 10% of the company’s enlarged share capital.

After the offering, Ninebot’s President Wang Ye will hold 13.86% of the total CDRs and control 34.11% of the company’s total voting rights. Chairman and CEO Gao Lufeng will hold 11.93% of Ninebot’s total CDRs and 29.36% of the total voting rights.

Registered in the Cayman Islands, Beijing-based Ninebot is one of dozens of Chinese companies that have used the VIE structure to get around government restrictions on foreign direct investment in certain industries such as telecommunications and the internet. Under a VIE, a mainland company sets up an overseas-registered company and uses contracts to maintain control over its mainland-based units that hold most of its valuable assets, including licenses. Many Chinese tech firms, such as Tencent Holdings Ltd. and Baidu Inc., use the VIE arrangement.

The Chinese authorities had barred companies with such a structure from listing on the mainland but scrapped the rule for the STAR Market when it was set up in 2019 in order to attract overseas-listed technology groups back home. Regulators also allow unlisted VIE-structured companies with rapid revenue growth and self-developed cutting-edge technologies to list on the board, hoping they will choose to stay in China rather than conduct an IPO abroad.

Ninebot is one of the world’s largest suppliers of electric scooters and hit the headlines in 2015 when it paid $60 million for Segway, a U.S. company whose founder had developed a two-wheel self-balancing personal transporter. The company has been unprofitable in each of the past three years, although its net loss narrowed to 459 million yuan in 2019 from 1.8 billion yuan in 2018, its prospectus shows.

The company is backed by Chinese electronics giant Xiaomi; venture capital firm Sequoia Capital China GF Holdco III-A, Ltd., a unit of venture capital firm Sequoia Capital China; and Intel Capital Corp., part of U.S. tech giant Intel Corp. Xiaomi, which holds a 10.91% stake in Ninebot, is also one of Ninebot’s key clients. Related-party sales to Xiaomi accounted for more than half the company’s revenue in 2019, according to its prospectus.

Contact reporter Tang Ziyi ( and editor Nerys Avery (

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