Chinese internet and software company, Kingsoft, is spinning off its cloud division and listing it in the U.S. despite the uncertainty in the markets. It comes in the face of a global coronavirus pandemic that has sent stocks tumbling, and the recent fraud scandal with China's Luckin Coffee.
Kingsoft Cloud said it would issue 25,000,000 American depositary shares (ADS) and up to 3,750,000 more if the so-called over-allotment option is exercised. This option gives the underwriting banks the ability to sell more shares than the original amount set.
Each ADS is expected to be priced between $16 and $18. Kingsoft Cloud said this would raise between $3.4 billion and $3.8 billion, assuming the over-allotment option is not exercised. The company expects to price the initial public offering (IPO) on Thursday with trading to start on Friday on the Nasdaq.
Kingsoft Cloud offers products from storage to computing and networking. Its revenue rose 78.4% year-on-year to reach 3.9 billion yuan ($568.3 million) in 2019 but its net loss increased from 1 billion yuan in 2018 to 1.1 billion yuan in 2019.
The company's IPO comes amid a tough stock market environment due to the coronavirus epidemic which has created uncertainty about the global economy in the future. It will test the appetite of investors for new listings.
It also comes as scrutiny on Chinese listings in the U.S. is on the rise following revelations of fraud at Chinese coffee chain Luckin Coffee, the self-proclaimed rival of Starbucks in China.
On April 2, Luckin Coffee announced an internal investigation found that its chief operating officer fabricated sales by about 2.2 billion yuan ($314 million) in 2019. Shares have tanked over 80% since then and have been halted from trade.
And last month, Chinese video streaming site iQiyi was accused of fraud and inflating its financial numbers by research firm Wolfpack Research.
iQiyi, which is a spinoff from Chinese internet giant Baidu, said it believes the report contains "numerous errors, unsubstantiated statements and misleading conclusions and interpretations."
U.S. Securities and Exchange Commission (SEC) Chairman Jay Clayton warned last month that disclosures by emerging market firms, including those from China, carry "substantially greater risk" of being "incomplete or misleading."
Kingsoft Cloud said net proceeds from the IPO could be between $392 million and around $451 million. Existing shareholder Xiaomi and Carmignac Gestion have expressed interest in buying up to $50 million in shares each. Xiaomi's founder and CEO Lei Jun is the chairman of Kingsoft Group.
Kingsoft said it will use the money it raises to invest in upgrading and expanding infrastructure and boosting technology and product development in areas such as artificial intelligence. Some of the proceeds will go toward international expansion.
J.P. Morgan, UBS, Credit Suisse and Chinese investment banking firm China International Capital Corporation (CICC), are underwriting the IPO.