Chinese bitcoin mining rig makers aim to raise billions in Hong Kong IPOs - sources
Soaring cryptocurrency prices last year triggered a boom in demand for specialist mining chips and in developing "mines" - facilities with thousands of machines that create the coins by solving complex mathematical puzzles.
Yet the U.S. chipmaker Nvidia Corp said this month that second-quarter sales to crypto miners totalled just $18 million, compared with $100 million expected by analysts.
Nvidia's chief financial officer, Colette Kress, said she anticipated "no contribution" to revenues from cryptocurrency in coming months.
That has raised concerns about the upcoming Hong Kong listings by three Chinese manufacturers of bitcoin mining equipment, Bitmain, Canaan Inc and Ebang International Holdings.
The companies all design high-end computer chips intended for mining cryptocurrencies, particularly bitcoin, and sell mining equipment containing the chips. In addition, Bitmain mines cryptocurrencies on its own account. Companies like Nvidia also sell specialty chips used for mining.
"The marked decline in the price of bitcoin since the start of the year is likely to weigh on investors' interest in these companies," said Benjamin Quinlan, chief executive of financial services consultancy Quinlan & Associates.
But, he added, "the fall in the price of bitcoin from its peaks has not been matched by an equivalent fall in the numbers of people mining it."
Bitcoin is currently trading at $6,699, down 64 percent from its December 2017 peak of $18,690. Daily mining revenue was 77 percent lower than in December, according to Blockchain.info, a data analytics and wallet provider.
"As the bitcoin price decreases, so does the profitability of mining itself, which decreases demand for mining chips and miners," said Wang Leilei, a consultant at financial services consultancy Kapronssia.
It is not just the price of bitcoin that is causing worries. People close to the IPOs said regulatory scrutiny and a patchy performance by Hong Kong offerings this year were additional concerns.
Julian Hosp, president of TenX, a Singapore-based blockchain firm, has also warned that if coins switch mining algorithms, then the machines designed to mine them would become useless.
"I would be quite wary of investing in these miners," Hosp said, referring to the equipment makers. "They are not long-term businesses and I think they've had their uptrend for now."
READYING IPO SALES PITCHES
Canaan and Ebang filed plans in May and June respectively for floats in Hong Kong, while Bitmain is expected to file its plans next month for an IPO in which it aims to raise at least $3 billion, sources close to the deal said.
Cryptocurrency trading is a global activity, but Chinese chipmakers have led the way in developing the most efficient means to mine the coins.
Bitmain had three quarters of the market for the specialist chips last year, followed by Canaan on 14 percent, according to estimates by analysts at Bernstein.
Ebang is aiming to raise up to $1 billion, according to sources, while Canaan is targeting at least $400 million - down from a figure of up to $2 billion touted earlier this year by people involved in the deal.
While EBang is expected to face Hong Kong's listing committee in September - a key approval needed for marketing the IPO - Canaan's offering is taking longer.
Two sources familiar with Canaan's situation said the company had not yet fixed a date for a committee appearance, as it worked on clearing up questions from HKEX officials regarding due diligence done on its prospectus.
A source close to Bitmain'S IPO said the company was aware about the potential for close regulatory scrutiny.
Bitmain, Canaan and Ebang didn't respond to requests for comment. A Hong Kong exchange spokesman declined to comment.
The bitcoin price slump is leading miners to consider their IPO sales pitches carefully, with many involved expecting them to push the potential of other uses for their chips.
Both Canaan and Ebang highlight the potential for their technology to be applied to other cutting-edge sectors.
That includes broader development of blockchain applications - the ledger system that underpins bitcoin and which is being widely explored by the financial industry - as well as artificial intelligence tools and the forthcoming build-out of 5G telecoms networks both within and outside China.
"The mainland government encourages chip design and production, as that is a segment of China's market that has been suffering," said Kapronssia's Wang.
"Bitmain and Canaan chips could also be used for non-bitcoin applications, like blockchain in general, big data, cybersecurity or AI, which is an advantage for the companies."
(Reporting by Julie Zhu, Alun John, Fiona Lau of IFR, Clare Jim, Marius Zaharia, Timothy Chan and Holly Chik in HONG KONG; Additional reporting by Thomas Wilson in TOKYO and Elias Glenn in BEIJING; Editing by Jennifer Hughes and Philip McClellan)
By Alun John and Julie Zhu