China's Bitmain aims for world's biggest crypto IPO

Bitmain Technologies has filed to list its shares in Hong Kong in what could be the world’s largest cryptocurrency initial public offering.

The Chinese company’s prospectus details three years of phenomenal growth, with revenues surging ninefold to $2.84bn in the six months to the end of June. However, the world’s biggest bitcoin-mining equipment maker is heading to market as bitcoin prices are crumbling, scything the cost of its equipment.

Bitmain kit is responsible for mining more than half the world’s bitcoins, and the hardware contributed 94 per cent of sales in the first half of this year, up from 80.5 per cent in the same period last year.

Research consultancy Frost & Sullivan estimates the global market for ASIC-based cryptocurrency mining kit made by Bitmain will reach $17bn in 2022.

While the prospectus highlights a strong first half, with an almost 800 per cent rise in net profit to $742.7m for the period, the scars of bitcoin’s slide are already evident. The digital currency is at roughly one-third of its December peak at $6,504, according to Coindesk.

The prospectus provided 2018 numbers only for the first half, but the numbers from this and the information given to investors in the pre-IPO funding round imply that second-quarter revenues slid to $1bn from $1.86bn in the first quarter. Operating cash flow is negative.

The prospectus warns investors that there has been “significant volatility” in digital currencies’ market prices since the end of the reporting period.

As a result, “the expected economic return from cryptocurrency mining has been adversely affected, which in turn may require us to make significant provisions with respect to our inventories. and lower the selling prices of our mining hardware, and our profitability, business, results of operations and financial condition may be adversely affected”.

A check of electronic stores in Shenzhen last month showed retailers selling the kit for roughly one-tenth of the prices charged in December.

Bitmain has doubled down on cryptocurrencies: in addition to selling kit to mine bitcoin, it holds $886.9m of cryptocurrencies, including bitcoin, bitcoin Cash and ethereum, accounting for 28 per cent of total assets at end-June. These, it said, were accounted for at cost rather than market value. It also accepts digital currency for its kit.

Bitmain’s funding round was hounded by issues, including complaints of different prices and inaccurate information. Temasek, Singapore’s investment arm, was forced to put out a statement denying any involvement, or even discussions, with Bitmain.

Early backers were told Bitmain hoped to be worth $30bn to $40bn in three years.

Unusually, Bitmain has handed the mandate for its IPO to a single bank, China International Capital Corp. Chinese companies usually boast a long line of sponsors and advisers when they list, heavily tilted towards the big global investment banks.

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