By Elzio Barreto and Fiona Lau
HONG KONG (Reuters) - Chinese photo app and mobile phone maker Meitu Inc is set to launch an up to $735 million IPO in Hong Kong that would value it at as much as $4.5 billion, IFR reported, making it among the 10 largest tech companies listed in the city.
Meitu's IPO will be a rare technology sector flotation in Hong Kong and the largest from the industry since the business-to-business unit of e-commerce giant Alibaba Group Holding <BABA.N> went public in 2007. A successful IPO could set the stage for future tech listings in the city, bankers said.
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Meitu, known for its apps that let users retouch and beautify selfies and other photos, is offering shares in an indicative range of HK$8.50 to HK$9.60 ($1.10-$1.24) each, IFR, a Thomson Reuters publication, reported on Monday, citing people close to the deal. The IPO is slated to be priced on Dec 8.
The company, which counts venture capital investors Qiming Venture Partners, IDG-Accel China and Tiger Global among its backers, declined to comment on the IPO terms.
About 95 percent of its revenue comes from the sale of smartphones, where it competes with much larger players including Huawei Technologies Co, Xiaomi Inc and Apple Inc <AAPL.O>.
In its preliminary prospectus in August, Meitu said it plans to use part of the IPO funds to expand its smartphone business and produce new devices, for potential acquisitions, and for marketing and research.
Despite being a top global venue for IPOs, Hong Kong has failed to attract a significant number of listings from Chinese technology companies. The majority of internet startups and software makers have chosen to go public in New York, where there's a larger pool of fund managers used to investing in loss-making, fast-growing companies.
"If the deal gets done well, it'll certainly open the prospect for Chinese tech companies to go for listings in Hong Kong," said a technology-focused investment banker who was not authorized to publicly discuss the industry and thus declined to be named.
Tech companies may also benefit from the stock trading link Hong Kong has set up with Shanghai and Shenzhen, eventually luring Chinese retail investors more familiar with domestic internet companies to buy into those listings, the banker added.
Still, Meitu and its bankers may have a tough time convincing institutional investors to buy into the IPO because of its high valuation and lack of comparative companies listed in Hong Kong.
There are only 30 technology companies with a market capitalization larger than $1 billion listed in the city, with businesses as diverse as semiconductors, hardware manufacturers and internet games, Thomson Reuters data showed.
Apart from Tencent Holdings <0700.HK>, with a market value of $239 billion, most companies are valued at less than $3 billion.
"It's a very nice app, but the long term monetization plans for the business are unclear," said a Hong Kong-based hedge fund manager who doesn't plan to invest in the IPO and could not be named discussing potential investments.
Between one-quarter to one-third of the shares will be sold to cornerstone investors, IFR said. That would be much lower than some of the large new listings in the city, including the $7.6 billion IPO of Postal Savings Bank of China <1658.HK> in September that had 77 percent of its deal bought by cornerstones.
Large investments by cornerstone investors hurt liquidity for IPOs once the shares start trading, as the stock is locked up for a minimum of six months. The cornerstone money can also pressure the stock as the expiration of the lock-up period nears.
China Merchants Securities, Credit Suisse and Morgan Stanley were hired as sponsors of the IPO.
(Reporting by Fiona Lau of IFR; Writing by Elzio Barreto; Editing by Muralikumar Anantharaman)