(ATF) The shares of Sunway have continued falling after the Shanghai-listed special cable-maker said it will not be acquiring a majority stake in Chinese TikTok star Luo Yonghao’s live-streaming e-commerce start-up after a change in the country's regulatory environment.
Sunway, based in Leshan in Sichuan province, decided to drop its previously planned purchase of a significant stake in Chengdu Xingkong Yewang Technology (“Starry Sky Ambition”) after evaluating the possible consequences of the new regulations related to live-streaming e-commerce events, according to a stock filing last Friday.
Starry Sky, which only started business in April, is the operator of e-commerce shows hosted by famous serial entrepreneur and live-streaming anchor Luo Yonghao. Most of Starry Sky’s sales have been driven by Luo, but it has signed several other sales hosts.
Friday’s announcement comes after Sunway on November 6 announced a plan to acquire a 40.27% stake in Starry Sky for 589 million yuan ($89 million) in a deal that would make the cable maker the live-streaming e-commerce company’s biggest shareholder. Starry Sky has a net asset value of 51.9 million yuan ($7.9 million), so the deal valued the start-up at a premium of 28 times its current value.
But Sunway and Starry Sky failed to reach an agreement on terms including valuation, pricing and profit forecast after China's market, internet and media regulators issued new rules which could affect the live-streaming sector, Sunway said in its filing.
Sunway’s stock soared 40% after it announced the deal last month, but started to decline from November 12, and has now fallen to the lowest point since February last year.
Just a few days before Sunway announced the live-streaming e-commerce deal, China’s State Administration for Market Regulation issued guidelines to tighten live-streaming marketing activities. These stipulate that live-streamers must abide by China’s laws related to product quality, food safety, consumer rights protection, and advertising, among others.
On November 13, the Office of the Central Cyberspace Affairs Commission issued draft rules for live-streaming e-commerce services. These require live-streaming platforms to verify the identity of salespeople in live-stream events and for a blacklist to be drawn up of live-stream sellers who violate rules or are a bad social influence.
Then, on November 23, China’s National Radio and Television Administration issued new rules that require live-streaming platforms to cap the tips that users can give to their favourite live-stream salespeople, and require organisers to verify the age and real identity of sellers, plus those who patronise them. The rules would also forbid minors aged under 18 from being able to send virtual gifts or tips.
“If the new rules go into effect, it will greatly impact the live-streaming sector in which the target company (referring to Starry Sky) operates,” Sunway said.
Due to lockdowns and travel restrictions induced by the Covid-19 pandemic, China’s live-streaming industry has seen rapid growth this year. This has been a financial bonanza for live-streamers and Chinese TikTok equivalents such as Douyin and Kuaishou. But it has also caused concerns about overspending by youngsters and consumer rights violations.
According to an estimate by iiMedia, some 526 million people will have used live-streaming platforms in China by the end of this year, and the total volume of live-streaming e-commerce sales is expected to reach 916 billion yuan ($140 billion).
Tighter regulatory control
“An era of tight regulation on live-streaming e-commerce is beginning. We believe the regulators’ intention is to protect consumers rather than to ban entirely commercial activities associated with live-stream shows. In the long term, this will benefit the industry and propel its healthy growth,” Jiao Juan, an analyst from Essence Securities, said in a commentary.
She expects the live-streaming market to condense, with small players being eliminated and the winners getting even stronger.
Luo’s company gave compensation totalling 1 million yuan ($152,900) to all consumers who bought roses from his e-commerce show on May 20 – the Chinese Valentine’s Day, after receiving complaints about product quality.
The entrepreneur, who still has 200 million yuan ($30.6 million) of debt from his failed Smartisan smartphone business, was recently restricted from luxury spending, according to credit reporting platform Tianyancha.