Companies seeking to go public in Hong Kong should show consistency in their business models, according to Hong Kong Exchanges and Clearing (HKEX) chief executive Charles Li Xiaojia, who was speaking on the sidelines of the World Economic Forum in Davos on Wednesday.

His comments were in response to media questions about the status of IPO applications from the world’s biggest makers of cryptocurrency mining rigs – Bitmain Technology, Canaan Creative, and Ebang International Holdings.

The three Chinese companies filed to go public in Hong Kong last year but a US$600 billion wipeout in the total market value of digital assets and a lack of regulatory framework in the industry have cast doubts on their fundraising plans.

Li did not comment specifically on the three IPO applications, but spoke broadly about the Hong Kong stock exchange’s general principles for listings.

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The exchange will decide if applicants are “suitable” to go public based on their business models, according to Li.

“If a company made billions of US dollars through Business A, but suddenly said it will do Business B without showing any performance, or said Business B is better, then I don’t think the Business A featured in their application will be sustainable,” he was quoted as saying by Tencent’s news portal. 

“Besides, if regulators were hands off [on Business A] in the past but will regulate it in the future, will you be able to continue the business and still make money from it?” he added.

Li added that the Hong Kong exchange will ensure “procedural justice” and that IPO candidates would have a right to appeal.

The remarks from the HKEX chief were almost a rebuke to the cryptocurrency mining companies, said Chun Yin Cheung, a partner in PwC China’s risk assurance practise.

“Investors share some concerns. For one thing, it remains a question if the cryptocurrency mining business still makes that much money,” Chun said. “Secondly, the cryptocurrency bear market has largely weighed on the valuation of these candidates. Some own a considerable number of tokens.”

Hong Kong’s reluctance on crypto IPOs may imperil Bitmain’s plan

Li’s remarks also echo the approach from the three cryptocurrency firms to justify their business models in their IPO applications. Despite the fact that cryptocurrency mining remains the dominant source of their revenue, all three companies have set their sights on the artificial intelligence industry.

For example, Bitmain – the world’s biggest cryptocurrency mining hardware supplier with a 75 per cent market share in 2017 – claimed to be a “strong contender in the AI chip industry” in its IPO prospectus, hoping to join the ranks of technology giants like Nvidia and Google. Last year the company launched a slew of AI products from machine learning chips to facial recognition servers.

But mining hardware sales still accounted for 94 per cent of Bitmain’s total revenue in the first half of 2018, according to its prospectus. The company held cryptocurrencies worth US$890 million during the same period, accounting for 28 per cent of its total assets.

Bitmain and its smaller rivals are going through tough times amid a prolonged bear market in cryptocurrencies. Bitcoin, the world’s biggest form of digital money, has lost 80 per cent of its value from a peak in December 2017.

In September Bitmain filed an application to publicly list in Hong Kong, following a similar move by Ebang and Canaan, the latter of which let its application lapse in November.

Hong Kong’s market regulator and stock exchange operator are unlikely to approve IPOs for any cryptocurrency-related business, citing the lack of regulation in the industry, people familiar with the situation told the Post previously.

Last month Bitmain said it was planning lay-offs amid the industry crunch, though it did not specify the extent of the job cuts. The company is poised to name a new CEO to replace its two co-founders, sources said earlier.