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

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.

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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.