Chinese music-streaming giant files for RM4.1b US IPO

By BLOOMBERG

SAN FRANCISCO • Tencent Music Entertainment Group, the online-music arm of China’s largest social-media company, filed for a initial public offering (IPO) in a continuing surge of US listings by Chinese companies.

The music-streaming site listed its offering size as US$1 billion (RM4.14 billion) in a filing on Tuesday with the US Securities and Exchange Commission. The amount is a placeholder and may change.

Tencent Music is preparing to sell shares after its parent company reported its first profit drop in at least a decade, while also grappling with new game-approval restrictions imposed by Chinese regulators.

China Literature Ltd, the e-book business spun off from Tencent Holdings Ltd in November, has fallen 43% in Hong Kong trading this year through Tuesday.

While some of their US counterparts have held back on public offerings, Chinese startups have enthusiastically pursued listings this year.

On US exchanges alone, US$7.4 billion has been raised in IPOs by China-based businesses, almost double the US$3.9 billion total in 2017, according to data compiled by Bloomberg.

Shares of Tencent Holdings rose 0.6% at 10:30am in Hong Kong yesterday, compared to a 0.4% gain on the benchmark Hang Seng Index.

Tencent Music focuses on three main experiences: Online music listening through products such as QQ Music that also help users discover new tunes; online karaoke sites like WeSing, where people can sing virtually with friends, celebrities or strangers; and live streamed performances.

The company counted 872 million monthly active users, combining the music service and social entertainment platform, in the three months ended in June. That’s up from 806 million monthly users in the same period of 2017.

People who used Tencent Music’s technology daily in the second quarter spent on average more than 70 minutes on its platforms, according to the filing.

Yet, Tencent Music is making money from only a sliver of those users. Just 3.6% of them pay for music, and only 4.2% for social and entertainment services, according to the filing.

For the first six months of 2018, the company reported a profit of US$263 million on total revenue of US$1.3 billion. For the 2017 fiscal year, its profit was 1.3 billion yuan (RM823.86 million) on revenue of almost 11 billion yuan, compared to 85 million yuan in sales of 4.36 billion yuan a year earlier.

Tencent Music’s platforms are becoming important vehicles for US pop stars such as Katy Perry and Rihanna to reach a Chinese audience, alongside homegrown artists including Jason Zhang and Joker Xue.

The company will remain closely linked to its parent, which holds 58% of the shares before the offering. The music business, whose tools are integrated into a range of Tencent’s Internet services, depends on the parent company to drive user growth, according to the filing.

Stockholm-based Spotify Technology SA is both a competitor and an investor, holding 9.1% of Tencent Music’s shares before the offering, according to the filing. The two companies may increasingly become rivals in regions such as South-East Asia.

Tencent Music also agreed to sell a combined stake worth about US$200 million to Warner Music Group’s Chinese business and Sony Music Entertainment, according to the filing. The new shares — totalling about 68 million — are subject to a three-year lockup period.

The cash raised in Tencent Music’s IPO will go toward trying to edge out competitors.

The company, which plans to trade under the symbol TME, has been considering the New York Stock Exchange and the Nasdaq Global Market as listing venues.