HONG KONG (Reuters Breakingviews) - Segway is blazing a trail to Shanghai. If all goes to plan, the owner of the self-balancing scooter will soon debut Chinese depositary receipts in a $300 million initial public offering. Ninebot brings sticky elements typically shunned by Beijing. A smooth listing would help set the tone for future stock sales.
The Segway saga is a classic case study that includes its former owner dying while on one of the gadgets. Rolled out and overhyped in 2001 as a revolution in transportation, the electric vehicles ultimately were just niche playthings for billionaires, hobbyists and tourists. Two-wheelers have made a strong comeback, however, thanks to Uber, Lime and others. Urbanites want cheap and green ways to get around and receive deliveries. Ninebot, which snapped up Segway five years ago, is now one of China’s top purveyors of e-scooters and bikes.
The company recently got the greenlight to sell CDRs, or traded certificates backed by unlisted ordinary shares, on Shanghai’s tech-focused STAR board. In 2018, Xiaomi shelved plans to be the first such mainland offering after the smartphone maker couldn’t agree with regulators on how to proceed.
Ninebot, which counts Xiaomi as both an investor and customer, presents extra complexities. Incorporated in the Cayman Islands, it will be the first A-share with so-called variable interest entities that control its mainland businesses. They are a way to skirt China’s foreign investment rules, commonly used by U.S.-listed tech companies from Alibaba to JD.com. Complicating matters further, Ninebot also has weighted voting rights and is unprofitable.
This deal shows just how far Chinese authorities have come. Less than two years ago, VIEs, dual-class shares and money-losing companies were barred from the country’s main exchanges. As part of broader plans to make its capital markets more competitive with New York’s, the experimental STAR board opened last year with looser listing criteria, a registration-based IPO system and other liberalisations. Similar changes are being introduced across other domestic bourses.
The payoff could be huge. New A-share and CDR offerings from qualified U.S.-listed companies including e-commerce outfit Pinduoduo and search-engine operator Baidu may total $49 billion, 40% more than last year’s total, China Renaissance analysts estimate. Companies in Hong Kong, like carmaker Geely Automobile, are also mulling a move to mainland exchanges. That means a lot is riding on Segway.
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