(BLOOMBERG) – A handful of investors rattled by China’s sweeping regulatory changes are looking to offload private stakes in TikTok parent ByteDance and other Chinese technology companies, according to advisory firm Setter Capital.
“People are seeing there is increased risk with China right now, especially if the regulations mean companies can’t IPO when they want,” said Mr Prab Rattan, vice-president at Setter, which helps asset managers buy and sell shares of private companies on the secondary market. “They want to take some money off the table.”
China has placed wide-ranging reforms across a number of industries. Last week, the authorities vowed tighter oversight of overseas share listings, among other warnings. The Securities and Exchange Commission said it is halting United States initial public offerings (IPOs) of Chinese companies until they provide more disclosures about investment risks.
As for ByteDance, which counts titans Tiger Global Management and Carlyle Group among its investors, the company is working to comply with data security requirements before going public, Bloomberg reported early last month. The move followed meetings with Chinese government officials over the issue earlier this year.
Setter saw ByteDance valued in the secondary market for as much as US$500 billion (S$677 billion). That is now about US$450 billion, Mr Rattan said. Valuations in the opaque and fragmented secondaries market can vary substantially from dealer to dealer.
A representative for ByteDance did not respond to a request for comment.
Mr Rattan, who declined to name clients, estimates there is US$1 billion or more in stakes of ByteDance up for sale. He expects to see private investors in other companies putting their shares for sale if the market tumult continues.
Prior to recent measures – which have targeted the private education industry, a growth driver for ByteDance – Toronto-based Setter saw demand for private shares outstripping supply, Mr Rattan said. One group of investors was prepared to snap up US$1 billion in ByteDance shares, but there was not enough supply, he said.
“Now that’s turned and we’ve seen about three or four blocks in the past two weeks, each seeking to offload from between US$50 million and US$200 million worth of private shares,” Rattan said.
Most of the sellers are US-based venture capital or hedge fund firms, or investors in those firms who want to exit their holding, Mr Rattan said. Some are motivated by reducing stakes that have grown too big in their portfolios.
As at mid-July, 37 Chinese companies had listed in the US, raising about US$13 billion in total, according to Bloomberg data. That is the highest for such a year-to-date period on record.
The short-video app TikTok has been surging in popularity. It was the most downloaded and highest grossing non-game app during the first half of this year, according to data from Sensor Tower. Analysts expect the company to continue to grow faster than its competitors, with EMarketer projecting its US user base will rise by 18 per cent this year.
Investors in ByteDance also include Softbank Group, Sequoia Capital China and KKR & Co, according to data-provider PitchBook.