Tencent Music executive sued for fraud ahead of US$1.2 billion IPO

  • The accusations come ahead of the much-anticipated New York IPO for the music streaming service operator, which is the biggest in China
PUBLISHED : Monday, 10 December, 2018, 5:54pm
UPDATED : Monday, 10 December, 2018, 5:54pm

An executive of Tencent Music Entertainment Group, the music industry spin-off of China’s biggest social network operator Tencent Holdings, faces an accusation of defrauding and coercing an early investor to sell his equity stake, ahead of the company’s planned initial public offering on Wednesday in the US.

Chinese investor Guo Hanwei claimed that Xie Guomin, co-president of Tencent Music Entertainment, “used misinformation, threats and intimidation” in 2013 to force the investor to sell his equity stake in Ocean Music, a company Xie co-founded and merged with Tencent Music to become the music streaming service today, according to a document filed with a New York district court.

Guo said he invested a total of 180 million yuan (US$26 million) in Ocean Music from 2012 to 2013 upon repeated invitation by Xie, who later – according to Guo’s account – told the investor that the company was failing and pressured Guo to sell his stakes. Guo said he sold the stakes to Xie in November 2013 for 158 million yuan.

Guo filed a motion for discovery last Wednesday in the district court in New York to assist an arbitration proceeding in China, requesting Xie and others to return his stakes and compensate him for his economic loss.

Tencent Music Entertainment declined to comment on the matter on Monday.

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The accusations come ahead of the much-anticipated IPO for the music streaming service operator, the biggest in China with more than 800 million monthly active users, as it seeks to raise as much as US$1.2 billion from investors in a New York listing on Dec 12. The IPO was previously paused in October amid a global tech sell-off, according to various news reports citing sources familiar with the matter.

Tencent Music operates music streaming app Kugou Music, Kuwo Music and QQ Music, which works more like Spotify, and WeSing, a karaoke music app. Xie currently oversees the Kuwo business, according to the company’s prospectus.

Tencent Music reported a total of more than 800 million monthly active users in the second quarter of 2018, who each spend on average more than 70 minutes per day on its platform. In contrast to Spotify, which is still unprofitable, Tencent Music posted 1.7 billion yuan in profit as of end June, up from the 1.3 billion yuan in the same period a year ago.

Social entertainment services, which include virtual gifting revenues from online karaoke and live-streaming services, accounted for 70 per cent of total revenue in the first half of 2018. Music streaming revenue accounted for the rest.