Bitmain’s IPO Application on HKEX Officially Expires

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The application of crypto mining giant Bitmain for an initial public offering (IPO) on the Hong Kong Stock Exchange (HKEX) has officially expired, therefore no such transaction will occur anytime soon. 

Per an update on HKEX’s website, Bitmain’s case is now in a group of “inactive” applications and marked as lapsed, several months after filing the prospectus on September 26.

Should Bitmain wish to pursue a listing, it may re-file the application but would have to add more financial records beyond what was included in the first filing.

“The latest financial period reported on by the reporting accountants for a new applicant must not have ended more than six months from the date of the listing document,” the HKEX’s listing rule reads. However, Bitmain’s last public filing only covers the period ending June 30, 2018, almost nine months ago.

The company previously announced an eye-popping profit growth over the last couple of years. For the first half of 2018, for example, Bitmain brought home a close to $1 billion net profit, after making more than $1 billion for the previous year.

Still, the HKEX was hesitant to approve applications from Bitmain and its mining competitors Ebang and Canaan Creative because of the industry’s volatility. In line with last year’s market slump, Bitmain suffered a loss of approximately $500 million in Q3 of 2018.

“Bitmain’s listing application to HKex in September 2018 has reached its 6-month expiration date. … We will restart the listing application work at an appropriate time in the future,” the firm announced on Tuesday.

Bitmain has also confirmed that its co-founders Micree Zhan and Jihan Wu have stepped down as co-CEOs. The company’s former director of product engineering Haichao Wang was appointed as the new CEO.

As of June 30, 2018, the company had a $715 million liability on its balance sheet tagged “redeemable, convertible and preferred shares,” resulting from the Series A and Series B funding rounds concluded in the last two years. That figure accounted for almost half of its overall liabilities at the time.

Per Bitmain’s IPO prospectus, the terms it agreed to with the investors included a redemption clause that grants shareholders the right to require the company to redeem or repurchase part or all of their shares when either one of two events occurs.

The document indicates that one such situation is “neither a qualified [REDACTED] nor a qualified trade sale defined in the terms has occurred by the fifth anniversary of the preferred shares’ issue date.” Another is the existence of a breach by the firm or its controlling shareholders which has a “material adverse effect” on the company’s entire businesses and “has not been cured within 30 days as defined in the terms.”

According to Shirley Wang, such redemption clauses are a typical way of protecting investors, and it is normal for investors to initiate a redemption procedure. She noted that conditions under which redemption rights can be used differ from deal to deal.

Based on the document, investors can redeem part or all of the B+ preferred shares after the earlier of:

“i) 5 years from the closing date (if no qualified IPO), or ii) upon any breach by any Group company or any founder parties of the terms of the transaction documents in connection with the transactions contemplated hereby which amounts of a material adverse effect and is not cured within 30 days.”

Under those conditions, Series B+ round investors may order Bitmain to redeem the shares in an amount that equate to the buying price plus “all declared and unpaid dividends” as well as “an assumed 10% compounded” annual return for every year the shares are outstanding from the closing time, minus any amount the investor had received.

“Qualified IPO is defined as an underwritten public offering of ordinary shares of the Company at a public offering price per share (prior to underwriting commissions and expenses) that values the Company at least US$18 billion in an offering of not less than $500 million,” the term sheet detailed.

The amount of money Bitmain wanted to generate from the IPO has been redacted from the HKEX prospectus, but documents showed the proceeds would have been as much as $18 billion at a $40 to $50 billion market cap.