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Tencent-backed Zhihu, a Quora-like Chinese platform, seeks Hong Kong listing in US$172 million IPO

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Zhihu, a Quora-like Chinese online content platform, is seeking a Hong Kong listing through a HK$1.3 billion (US$171.7 million) stock offering by some of its early investors, more than a year after its New York debut.

Some of its existing shareholders will offer 26 million shares, or about 8.2 per cent of the share capital, for as much as HK$51.80 each, according to filings. That works out to a 29 per cent premium to its American depositary shares, which closed at US$2.56 on Friday. Each Hong Kong share represents two American depositary shares.

The IPO, which has an overallotment option of up to 3.9 million more shares, is slated to close on Thursday. Trading is set to begin on the main board under the ticker "2390" on April 22, the company said.

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The Zhihu listing in Hong Kong will allow early venture investors like Innovation Works Development Fund, which is co-managed by former Google China head Kai-fu Lee, Qiming Ventures and a unit of SAIF Partners to cash out some of their holdings. They will still retain a minority stake in the company.

Zhihu is backed by a venture fund co-managed by former Google China head Kai-fu Lee. Photo: Edward Wong alt=Zhihu is backed by a venture fund co-managed by former Google China head Kai-fu Lee. Photo: Edward Wong>

"The global offering will present us with an opportunity to further expand our investor base and to broaden and solidify our access to capital markets", the Beijing-based company said in its prospectus.

At the top end of the offer price, Zhihu would be valued at HK$16.4 billion. Its depositary shares have plunged about 80 per cent from their peak of US$12.51 last June amid China's crackdown on internet-platform operators.

Zhihu's dual primary listing comes just over a year after its US$523 million New York IPO in March 2021. Tencent Holdings, which owns about 12.8 per cent, is not selling down its stake.

The Hong Kong listing plan follows a slew of US-listed Chinese companies seeking secondary listings closer to home as many of them seek to hedge against the risk of being kicked off American exchanges over audit matters.

The implementation of the Holding Foreign Companies Accountable Act has empowered the US Securities and Exchange Commission to delist foreign companies from US exchanges if they fail to turn over audit results for three straight years. The first delisting of non-compliant foreign stocks could start in late 2023.

Chinese electric vehicle maker Nio completed a secondary listing in Hong Kong in March by way of introduction, a quicker listing route without selling any shares to the public.

Zhihu's dual-primary format could lead to its inclusion in the Stock Connect scheme, a mutual market access mechanism that allows mainland Chinese investors to trade Hong Kong stocks and vice versa. The scheme currently excludes stocks with secondary listings.

China's 'giant online cafe' struggles to find monetisation model amid rapid growth

Launched in 2010, Zhihu had 99.6 million average mobile monthly active users and 500 million monthly viewers as of the fourth quarter of 2021. Its net loss widened to 1.3 billion yuan (US$204.7 billion) in 2021, from 517.6 million yuan in 2020.

"We expect to continue incurring net loss and net operating cash outflow in the near future as we continue to incur expenditures to build up and expand our content ecosystem," it said in the prospectus.

Credit Suisse, CICC, JPMorgan and CMB International are joint sponsors and bookrunners.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2022. South China Morning Post Publishers Ltd. All rights reserved.