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Tencent

China’s Tencent Music presses play on US$1.2 billion US IPO

  • Valuation lower than anticipated US$2 billon but would still be one of the largest by a Chinese firm in the US this year
PUBLISHED : Tuesday, 04 December, 2018, 9:32am
UPDATED : Tuesday, 04 December, 2018, 9:43am

Tencent Music Entertainment launched its hotly-anticipated US initial public offering (IPO) of up to US$1.2 billion on Monday after global stock markets were boosted by a truce brokered by US and Chinese leaders in their trade conflict.

The music arm of tech giant Tencent Holdings is looking to raise between US$1.07 billion and US$1.23 billion in a New York Stock Exchange IPO, according to a filing with the US Securities and Exchange Commission.

The company originally planned to launch its offering in mid-October, according to an earlier report.

But it then decided to delay the IPO over worries the steep global stock market sell-off in the past few months would affect the pricing.

The decision by China and the United States to call a 90-day hiatus on their trade war over the weekend sent Asian shares soaring on Monday as markets breathed a sign of relief that tensions would ease, at least temporarily.

Tencent Music IPO filing offers glimpse into world of Chinese online karaoke

The music streaming giant is selling 82 million American Depositary Receipts (ADRs) in a range of between US$13 and US$15 each, according to the filing.

Tencent Music could sell an additional 12.3 million shares if an over-allotment option is exercised.

The US$1.23 billion figure is smaller than the US$2 billion that was earlier mooted as a fundraising target, though the company never confirmed such a number.

A source close to the deal said Tencent Music was keen to get itself listed this year because it was worried US-China trade tensions would worsen, not because it desperately needed fresh money.

“It’s not worth waiting any longer for a potentially higher valuation if they have to deal with so many uncertainties,” said the source.

At US$1.23 billion, the IPO would still be one of the largest by a Chinese company in the United States this year, behind the US$2.4 billion raised by video streaming company iQiyi in March and the US$1.6 billion garnered by online group discounter Pinduoduo in July.

In total, Chinese companies have raised US$7.8 billion from US IPOs so far this year – the biggest amount since 2014 – according to Refinitiv data.

Tencent Music owns streaming apps QQ Music, Kugou and Kuwo as well as karaoke app WeSing, and claims more than 800 million monthly active users.

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The company is targeting a valuation of between US$22 billion and US$25 billion, according to a source close to the deal, roughly on par with that of its Swedish music streaming counterpart Spotify Technology, which went public in New York in April and has a market value of US$24.3 billion.

Tencent Music, which has a cross shareholding deal with Spotify, offers more in the way of socially interactive services that makes it profitable.

It reported a 244 percent jump in profit in the first nine months of this year to $394 million from $114 million in the same period in 2017. By comparison, its Swedish peer posted a net loss of $520 million over the first nine months of the year.

The company will open its books on December 4 and shares will begin trading on December 12, according to the source.

Bank of America, Deutsche Bank, Goldman Sachs, JPMorgan and Morgan Stanley are the lead sponsors of the deal.