The Information: Following Manus Suspension, Ripple Effects Prompt Moonlight and Star Leap to Consider Privatization and Return to Domestic Market

According to Dongcha Beating Monitor, as reported by The Information, after China's National Development and Reform Commission halted Meta's $20 billion acquisition of AI agent company Manus, the China Securities Regulatory Commission has started tightening the approval of Hong Kong IPOs for China's red-chip structure companies (Chinese companies using offshore entities, such as registered in the Cayman Islands, to hold domestic assets). Several Chinese AI companies that were considering Hong Kong IPOs are now evaluating dismantling their offshore structures and reorganizing as domestic entities.

The Dark Side of the Moon (developer of the Kimi series models) is currently in discussions with lawyers regarding structural reorganization and has not made a decision yet. The company is close to completing a funding round with a valuation of $18 billion. LeapStar has proactively begun dismantling its offshore holding structure earlier this year, believing that transitioning to a domestic entity can shorten the time for Hong Kong IPO approval. LeapStar's investors, including the Shanghai municipal government, all support the restructuring. Autonomous driving company DeepRoute.ai is also engaged in similar discussions.

Undoing the red-chip structure is a complex legal process that usually takes 6 to 12 months. Companies need to repurchase all shares held by investors in the offshore holding entity, establish a Sino-foreign joint venture domestically, and then resell the shares to the original investors in the name of the joint venture. During this process, investors are required to pay capital gains tax in accordance with Chinese regulations. If some investors choose not to participate due to concerns such as foreign exchange controls, the company will have to find other funds to fill the gap. When the company eventually goes public, the lock-up period for existing investors will be extended from 6 months under the red-chip structure to 12 months.

Currently, there is no comprehensive ban on the red-chip structure, but the CSRC has inquired about the offshore holding situation of companies like The Dark Side of the Moon. Several lawyers advise clients to wait and act only when the CSRC clearly demands it. The majority of China's tech giants (Alibaba, ByteDance, Tencent, Baidu) are still registered in the Cayman Islands.