Xiaohongshu boasts approximately 300 million monthly active users. Credit: Runrun2/Shutterstock.

Shareholders of Chinese social media app Xiaohongshu are negotiating to sell shares in the company at a valuation of $20bn, Bloomberg has reported.

This development comes as TikTok plans to shut its US operations, following a federal ban that mandates a halt on new downloads if its parent company ByteDance does not divest the site.

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A Supreme Court decision is anticipated on 19 January 2025, regarding whether TikTok will be required to shut down within a few days.

Backers GGV Capital, GSR Ventures, and Tiantu Capital are said to be discussing selling parts of their holdings in Xiaohongshu.

According to sources, funds showing interest include existing stakeholders HongShan Capital Group and Hillhouse Investment.

Tencent Holdings is also considering purchasing more shares, the news publication added.

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A successful transaction would restore Xiaohongshu’s valuation to its 2021 peak, coinciding with an influx of US users leaving TikTok.

This boost could support an initial public offering anticipated during 2025, subject to market conditions.

However, the deal is not yet finalised due to existing shareholders’ rights of first refusal and priority in any sale.

Negotiations may falter if potential buyers hesitate, especially given the uncertain TikTok situation.

Xiaohongshu, which recently became the most downloaded free app on iOS, was founded in 2013 by Charlwin Mao Wenchao and Miranda Qu Fang and boasts approximately 300 million monthly active users.

In the second half of 2024, several major fund houses, including a Citic Group fund affiliate and Loyal Valley Capital, acquired shares at a valuation of more than $17bn, reducing the company’s equity below its 2021 $20bn valuation.