UCL - uCloudlink Group: Macro Pressure And Regulatory Worries

2025-09-10 10:09:47 ET

uCloudlink Group Inc ( UCL ) is not a particularly easy business to understand, particularly as disclosure spends so much time on delineating the change in structure associated to the risk that the telecoms industry used to be entirely off-limits to foreign investors as one of China's key protected industries. There was a way to deal with this using VIE structures . As the company came to a point where apparently it was no longer needed , in part due to the gradual though limited opening up of the telco industry and related industry activities to foreign investment, a more direct ownership structure became possible to our understanding and the VIEs and associated contractual arrangements were unwound as of 2022 - though we aren't totally clear on all these details though we don't think it matters too much. It's very clear in the disclosure and it should be clear to investors that there are risks here of possible increased oversight over these industries in the PRC, with associated risks such as revocation of licenses, other running costs or restrictions or the inability to raise further capital and the extent to which the ADSs can really be called a security. Indeed, the PRC government is capable of changing the law such that shareholders may not be able to assert their rights to the economic benefits coming from the business's subsidiaries and assets, for example by re-closing the industry to foreign investment. This is a problem with most investments in ADRs or ADSs associated with Chinese businesses, and frankly why we will probably never hold these sorts of stocks in our portfolio. But we feel that the risks are particularly high for a company whose business is in telco, a strategic and historically protected industry in China....

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