Hong Kong Stock Exchange Reportedly Reconsidering Bitmain Listing Approval
The year-long crypto winter could be responsible for the potential collapse of an IPO for one of the cryptocurrency’s largest companies, Bitmain.
Reportedly, the Hong Kong Stock Exchange (HKEX), which received applications from three Chinese-based mining companies for public listing on the exchange, has expressed reservations about approving the initial public offering (IPO) applications.
Canaan Creative, Ebang, and Bitmain experienced massive growth in the run-up to the 2017 price boom in the crypto markets and understandably filed for IPOs in May, June and September in that order, seeking approval to list their respective shares on the Hong Kong Exchange.
Things have however changed dramatically in 2018, with the price meltdown and uncertainty pushing HKEX into a rethinking its position.
An unnamed source reportedly told Coindesk that the exchange had expressed some fears of allowing the public offerings, even as the application by Canaan Creative lapsed.
Now it’s upon Bitmain and Ebang to convince the exchange, with the anonymous source saying that any approval could be a big challenge given HKEX is “hesitant” due to the massive volatility experienced in the crypto industry.
According to the source, “there’s a real risk” that the mining firms could fold within a year or two and the exchange is not ready to become the “first” to approve only for “one die on them.”
There has been no comment on this from either the exchange or the three mining giants, with Bitmain pointing to the pre-IPO quiet period, while HKEX cited its policy of not commenting on specific companies.
An IPO application can only proceed to the next step once it gets approved by both the HKEX and the Chinese territory’s financial regulator the Securities and Futures Commission (SFC).
Applications lapse after six months if it fails to reach the hearing stage. Canaan’s application expired – Hong Kong’s financial regulator – the case will proceed to a listing hearing, during which the offering size and share price are decided and then made public.
However, if an applicant does not make it to a listing hearing after six months from filing, the application will lapse, meaning the case is no longer active, though the applicant could choose to reactivate the case later if it still wishes to pursue the fundraising.
Canaan’s request lapsed last month, while that of Ebang has less than two weeks before facing the same fate.
Bitmain’s filing, highly publicized within the crypto community, is three months into the six months and may appear to have the time to progress to the next level of approval. Yet that also seems to be a given.
The leading bitcoin mining hardware manufacturer must convince both HKEX and SFC, whose twin approval is the only ticket to the hearing stage. But if one of the two fails to sign on the dotted line, then the application is as good as dead, the source said.
One of the biggest hurdles Bitmain needs to navigate is to convince the exchange that its business is sustainable, which could have more weight than proving that its three-year financial track record is impeccable.
Legal experts have weighed in the matter, noting that there have been cases when question marks about sustainability have seen IPO applications fail.
HKEX is said to be moving cautiously given regulatory uncertainty over having the IPOs in Hong Kong as well as the recent market speculation that sees bitcoin prices dwindling.
One Hong Kong-based legal advisor, Frank Bi, says that with current crypto uncertainty “it is even more difficult to present a sustainable business model.”
Current market downturn a big reason why
It is reported that HKEX could be banking on the price chaos to continue to get grounds of rejecting the applications.
That is so because if financial track records are above reproach and the market recovers considerably, then the exchange might have no reason to disapprove the listing.
But the cryptocurrency market is yet to register any significant uptick in price. Furthermore, Bitmain has not moved to disclose its financial records for Q3 (and later on Q4) – periods in which the market took a notable dive towards a price abyss.
The current situation worries HKEX which could be the reason it is “dragging,” but should a bitcoin price rally materialize, the exchange could fall under pressure and so approve the applications due to an overall market recovery.
However, as long as the crypto market continues to struggle, the onus is on Bitmain (and Ebang) to prove that their businesses are indeed sustainable, a key point of reference for HKEX.
That hasn’t escaped companies seeking approval either, many of which claim to have a diversified business approach. Bitmain too makes that point in its filing, pointing to its substantial research and development projects in artificial intelligence (AI).
The ASIC maker refers to itself as a “strong contender in the AI chip industry,” with ‘promising results.’
But that hasn’t really convinced the exchange, which is said to believe that Bitmain’s primary business is the production of bitcoin mining hardware, and that, according to the source, isn’t exactly sustainable at the moment.
Bitmain released a financial record in which the firm was shown to hold $886.9 million in cryptocurrency as of June 30, 2018. The stash included holdings in BTC, BCH, ETH, LTC, among others.
But most of these coins have lost a significant portion of their value after the latest crypto price decline, which does not augur well for the mining giant’s balance sheet.
So what happens if the three China-based mining companies fail in their bids to get listed on the Hong Kong stock exchange?
In effect, nothing much apart from maybe a failure at efforts to enhance their status as listed companies.
All three companies made enough money off cryptocurrency mining, especially in 2017 that the reasons for listing may not be for fundraising but to enhance their profiles.
Two weeks for Ebang and a little over three months for Bitmain, is, therefore, all that remains.
Disclaimer: This is not investment advice. Cryptocurrencies are highly volatile assets and are very risky investments. Do your research and consult an investment professional before investing. Never invest more than you can afford to lose. Never borrow money to invest in cryptocurrencies.