Tencent to spin-off online music unit Tencent Music for US listing

Tencent, the Chinese social media and gaming juggernaut, has proposed to spin-off its online music streaming business Tencent Music for a separate listing in the US, which could also profit Spotify, an investor in Tencent Music and its strategic partner in China.

Tencent plans to spin-off its majority-owned Tencent Music Entertainment Group and list it separately in the US, Tencent said in a filing to the Hong Kong stock exchange on Sunday evening.

The Hong Kong exchange has confirmed that the company may proceed with the proposed spin-off, it added.

The terms of the spin-off, including the offering size, price range, and how many shares in Tencent Music that the existing shareholders of Tencent will get, have not yet been finalised.

The spin-off is subject to the approvals from relevant authorities and final decisions by the boards of Tencent and Tencent Music, Tencent said.

The IPO will also profit Spotify, which owns 9 per cent of Tencent Music after a joint equity investment deal in December that saw Tencent and Spotify take a stake in each other’s music streaming businesses. Tencent owns a 7.5 per cent stake in Spotify.

According to Spotify’s prospectus, the firm valued its 9 per cent stake in Tencent Music at 910 million euros (US$1.07 billion) at the end of last year. That translates to a valuation of more than US$12 billion for Tencent Music at that time.

Spotify went public in New York in April, valued at nearly US$30 billion.

A report by Sina.com, a news portal of Sina Corp, said last week the investment banks for Tencent Music’s US IPO have given it a conservative pricing range, which valued Tencent Music at between US$29 billion to US$31 billion.

Last November, Tencent spun off its online publishing and e-book unit China Literature for a Hong Kong listing, raising US$1.1 billion.

Owing to a retail frenzy for tech offerings in the second half of last year, China Literature’s stock surged more than 80 per cent during debut trade, after it attracted retail investor demand of 625 times the shares available and locked up more than HK$520 billion (US$66.29 billion) of investor capital, about a third of Hong Kong’s money supply.