Is Huobi using an IPO loophole to land stock exchange listing?

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Is Huobi using an IPO loophole to land stock exchange listing?

Popular crypto exchange Huobi is planning to become a public company through a reverse Initial Public Offering (IPO). This is according to a document filed with the Hong Kong Stock Exchange (HKEX) dated September 10.

According to the filing, Pantronics Holdings Limited, a company acquired by Huobi in August 2018, plans to change its name to Huobi Technology Holdings Limited.

Publicly available shareholding disclosures show that Huobi Group purchased 221 million ordinary shares of Pantronics for a reported US$77 million, giving it a 73% stake in the company.

Pantronics, which had been a publicly-traded company up until the acquisition, halted the trading of its shares on the HKEX effective August 22, 2018.

This deal was one of the first steps in Huobi’s plans to go public in Hong Kong. In order to do so, the exchange looks to perform a reverse takeover.

What is a reverse IPO?

Viewed by some as a loophole of sorts, a reverse IPO – also called a reverse takeover (RTO) or backdoor IPO – is a type of merger that allows private companies to become publicly traded without having to go through the considerably more complex, expensive, and lengthy IPO process.

In a reverse IPO, the private company (Huobi) purchases enough shares of a publicly-traded company (Pantronics) to have a controlling stake in that company.

As the controlling stakeholder, Huobi’s shareholders can exchange their shares for shares of Pantronics, which will effectively now make Huobi a publicly-traded company.

There could be a slight wrinkle in Huobi’s plan, however, as the HKEX has stated that it plans to update its regulatory guidelines by October 1.

This update is expected to include stricter regulations regarding reverse IPOs. Specifically, it would make the process more difficult for businesses that acquire publicly listed Hong Kong-based companies from different industries.

The HKEX also plans to introduce a new category of notifiable transactions aimed specifically at backdoor listings attempting to circumvent IPO requirements.

These stricter regulations could put a halt to Huobi’s plans. If that is the case, Huobi would have to go public through a traditional IPO rather than a reverse takeover.

Going public an uphill battle for crypto companies
Hong Kong Stock Exchange (HKEX)

Going public an uphill battle for crypto companies

Huobi is not the first crypto-related company to attempt to go public.

Bitcoin mining giant Bitmain is reportedly on its second attempt at an IPO. According to Bloomberg, the company hopes to raise between $300 and $500 million through an offering in the U.S.

Previously, Bitmain had tried to launch an IPO on the HKEX, however, in March of this year, the company allowed its application to expire.

Another company that is planning to go public is rival miner manufacturer Canaan Creative. The firm has reportedly confidentially filed for an IPO in the United States, through which it hopes to raise approximately $200 million. 

Like Bitmain, Cannan Creative also previously tried launching an IPO on the HKEX but it, too, allowed its application to expire.

Market reaction Huobi Token
Huobi Token (HT) 7-day (CoinMarketCap)

Market reaction

Huobi Token (HT) doesn’t appear to have been unduly affected by news of the filing released by the Hong Kong Stock Exchange.

The token, which enables users to receive a discount on trading fees on the platform, has been trading fairly steadily in the $4.00 to $4.35 range for most of the week. 

At the time of writing, Huobi Token (HT) is trading at $4.08 and it is the 15th largest cryptocurrency by market cap, according to CoinMarketCap.