Seeking cash for AI, China’s Z.ai eyes new US$5b fundraising push after July share sale

Chinese artificial intelligence firm Z.ai is planning a major fundraising effort to secure around US$5 billion, following a recent share sale. The company, listed in Hong Kong under the name Zhipu AI, aims to raise approximately HK$15.7 billion by issuing new H shares, with the placement expected to generate HK$21.97 million shares at HK$714 per share.

Additionally, Z.ai has announced a 20.14 billion yuan convertible-bond sale, which could also contribute to the fundraising target. The company's stock has seen a significant decline, dropping 73% from its June 22 high of HK$2,980 to HK$793 as of Friday. The fundraising moves come as Z.ai's 60-day lock-up period following its July placement expires, a period during which new shareholders are typically prohibited from selling their holdings.

The July placement raised HK$31.4 billion from the sale of 19.78 million shares, following a lock-up on 25.68 million initial public offering shares. Z.ai is also exploring a potential listing on Shanghai's Star Market. The company has been actively seeking capital to fund the development of advanced AI models, which have proven to be costly endeavors.

Despite the challenges, Z.ai has reported impressive growth, with revenue increasing 400% to 953.89 million yuan (US$142 million) in the six months to June 30, and annual recurring revenue reaching US$1.6 billion by the end of August. However, the company has also experienced growing losses, with adjusted net loss rising 12.1% to 1.96 billion yuan.

R&D spending has risen by a third to 2.13 billion yuan, while cash reserves stand at 3.99 billion yuan. Z.ai recently launched its latest flagship model, GLM-5.3, and a cheaper multimodal version called GLM-5.3-Flash. Management has hinted at work on a next-generation model with more parameters, a longer context window, and native multimodal capabilities.

Despite the company's ambitious growth targets, industry experts caution that Z.ai and its rival MiniMax could remain loss-making through 2030 due to rising computing costs. Analyst Ellie Jiang from Macquarie Group estimates that Z.ai aims for annual recurring revenue of around US$2.4 billion by year-end, a figure that Macquarie believes is closer to US$3 billion.