China’s Moonshot AI moves to unwind offshore structure in IPO pursuit: sources

Moonshot AI, the Chinese AI unicorn behind the popular Kimi chatbot, has informed shareholders that it intends to dismantle its offshore structure to pave the way for an initial public offering, likely in Hong Kong, according to people familiar with the matter. The Beijing-based start-up, with assets held by a Cayman Islands parent company, has proposed a plan to remove its variable interest entity (VIE) structure. The company sought feedback from investors this week, the two sources said, speaking on condition of anonymity. The move is the latest example of how Beijing has toughened its stance on the decades-old arrangement that has allowed foreign investors to gain exposure to Chinese companies. While no formal rule change has been enacted, the China Securities Regulatory Commission (CSRC) has increased its scrutiny of offshore entities, often requiring start-ups to justify the necessity of the VIE model. Some VIE companies have reportedly been advised to restructure and pursue listings through their mainland entities instead. Under the typical VIE structure, a company sets up an offshore holding entity – often in the Cayman Islands – which controls a Hong Kong subsidiary. That subsidiary, in turn, establishes a wholly foreign-owned enterprise (WFOE) in mainland China. Rather than owning the operating business outright, the WFOE controls it through contractual agreements. This allows foreign investors to gain exposure to sectors such as telecoms and the internet, which are otherwise subject to restrictions on overseas ownership. Moonshot initially attempted to seek an exemption to proceed with the VIE structure, but the recent proposal to unwind it signals that the chance of getting a waiver is slim, one of the sources said. Moonshot did not immediately respond to a request for comment on Tuesday. Investor appetite for Chinese artificial intelligence start-ups remains robust despite regulatory hurdles. Earlier this month, Moonshot raised about US$2 billion in a new funding round, boosting its valuation to more than US$20 billion. Over the past six months, it raised a total of US$3.9 billion. The regulatory pressure is forcing a broader recalibration across the sector. Shanghai-based start-up StepFun AI has also moved to restructure. Several Chinese media outlets reported earlier this month that StepFun had dismantled its “red-chip” structure while nearing a financing round of US$2.5 billion. StepFun did not immediately respond to a request for comment on Tuesday. Corporate registration records on the local corporate registry service QCC show that StepFun, which was racing against Moonshot to get listed, has converted its structure from a limited liability company to a joint stock company listed by shares – a standard move to pave the way for a Hong Kong debut. Out of the 41 newly listed companies in Hong Kong as of April 8, only two used the VIE structure, according to a report by state-backed Securities Times, citing data compiled by Wind, a financial data service. That compares with nearly 30 per cent of listed firms over the same period last year.