StepFun's Shift to Onshore Structure Ahead of Hong Kong IPO

Chinese AI startup StepFun is unwinding its offshore incorporation structure to facilitate a planned initial public offering (IPO) in Hong Kong. This decision comes in response to increased scrutiny from China's securities regulator, which has mandated that "red-chip" companies—those registered abroad but operating in China—restructure to comply with new regulations. StepFun, founded in April 2023 by former Microsoft Vice President Jiang Daxin, has opted for an onshore corporate structure, as it is significantly backed by state capital, including investments from the Shanghai municipal government and Tencent Holdings.

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The Chinese government has intensified its oversight of companies utilizing offshore structures, particularly those based in tax havens like the Cayman Islands. This regulatory shift aims to ensure that companies maintain a stronger connection to their domestic operations. Experts suggest that this could delay IPO plans for many firms as they navigate the complexities of changing their legal structures, which may be financially burdensome.

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StepFun is reportedly planning to raise between 2 billion yuan ($293 million) and 3 billion yuan in a pre-IPO funding round, aiming for a valuation of up to $6 billion. The company intends to file for its IPO by the end of June, targeting a valuation of $10 billion for anchor investors. Since its inception, StepFun's AI models have gained significant traction, ranking among the top three on the OpenClaw platform, and have been integrated into products from OPPO and Geely.

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The tightening of regulations has prompted other Chinese tech companies, such as Moonshot, to reconsider their offshore structures. Moonshot, which has developed a competing large language model, is currently evaluating whether to dismantle its offshore incorporation in light of the new guidance. The company is also seeking to raise $1 billion in funding and may initiate its own IPO process later this year.

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While the regulatory changes aim to strengthen domestic corporate governance, critics argue that the abrupt shift could stifle innovation and deter foreign investment in the Chinese tech sector. Some companies may find the costs associated with restructuring prohibitive, potentially leading to abandoned IPO plans.

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As of now, StepFun has not publicly commented on its restructuring plans. However, industry insiders indicate that the move is part of a broader trend among Chinese tech firms responding to regulatory pressures.

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There is uncertainty regarding the exact number of red-chip companies affected by the new regulations, as well as the potential impact on their IPO timelines. While some sources suggest that many firms are scrambling to comply, others indicate that the full scope of the regulatory implications remains unclear.

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• "The move by StepFun highlights how some Chinese companies are rushing to meet the new regulatory guidance to keep offshore listing hopes alive." — Anonymous Source

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• "Since the red-chip structure has been put under the spotlight, a number of Chinese companies... have started deliberating whether they should follow regulators' guidance." — Anonymous Source

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