ByteDance, the company that owns social network TikTok, has indefinitely abandoned its intention to go public in the U.S. after the Cyberspace Administration of China (CAC) urged it to review possible risks for the security of its users’ data, according to the Wall Street Journal.
ByteDance Dropping IPO Intentions
The company was valued at $180 billion in its latest round of investment and was evaluating the execution of an initial public offering either in the U.S. or Hong Kong.
When a liquidity crisis struck China's Evergrande Group in the summer of 2021, it shook the global markets. Debt payments by China's second-largest property developer by sales were estimated in the hundreds of billions of dollars, and the company missed several payments. Those missed payments led to downgrades by international ratings agencies, but the Chinese Read More
However, the plan was halted in March 2021 –at which point ByteDance had no CFO– following wake-up calls from financial and cyberspace regulators. However, the company filled the vacant in March with Shou Zi Chew, a former executive at Xiaomi, increasing speculation about a potential IPO.
Despite warnings from China, ByteDance was still planning its IPO. However, founder Zhang Yiming decided to be more cautious after meetings with the regulatory and securities entity, which asked him to put his efforts into a strategy to address security issues.
Since November, Chinese authorities have tightened their control measures on technology companies established in their territory, with a broad antitrust campaign and with new laws to regulate the data collection, misuse, and cybersecurity practices.
These changes have affected multinationals such as Alibaba Group Holding Ltd (NYSE:BABA), Meituan (OTCMKTS:MPNGF), or DiDi Global Inc – ADR (NYSE:DIDI).
Cybersecurity, an Issue for Chinese Authorities
One of Beijing's concerns has been that users of these Chinese companies could be compromised by a greater disclosure of their data associated with the listing of these companies in the U.S.
After raising $4.4 billion in its IPO debut, ride-sharing platform DiDi lost 20% of its value on the stock market in the U.S., after the Chinese government blocked the download of the application for cybersecurity reasons.
On Tuesday, China said it would strengthen oversight of overseas trading. The Securities Regulatory Commission (CRV) is developing rules that could require companies registered in other countries to request their approval before selling shares in other markets.
The CAC is to direct the inter-institutional scrutiny of candidates for the initial public offering, to make sure their plans don't put national security at risk.
Such clamp on cybersecurity practices has prompted investors to look away from China-based companies, as authorities in the country have banned financial technology companies from listing, as well as “real estate and firms mainly engaged in financial services and investment businesses.”