Carlyle-backed Tencent ebook unit files for Hong Kong IPO
China Literature, the ebook unit of China’s Tencent Holdings whose backers include The Carlyle Group and Trustbridge Partners, has filed for an IPO in Hong Kong.
Financial details of the offering have not been disclosed, though Reuters estimated it could generate up to $800 million. Proceeds will be used to grow the company’s mobile reading platform and to fund investments, acquisitions, and industry partnerships, according to the prospectus. The company will also pursue derivative entertainment ventures based on its publications.
China Literature claims to be China’s leading online literature platform. Its store offered 8.4 million literary works from 5.3 million writers as of December 2016, eight million of which are exclusively available through China Literature’s platform. According to search rankings from Baidu, the company accounted for nine of the top ten most searched online literary works in China.
Tencent holds a 65.4% stake in China Literature, while Carlyle and Trustbridge own 12.9% and 6.3% respectively. The PE firms first invested in the company in 2014 to support its acquisition of online publishing platform Cloudary, which had withdrawn its US IPO the previous year citing unfavorable market conditions.
The Cloudary purchase significantly expanded China Literature’s audience, with the combined company accounting for 48% of ebooks downloaded in 2016.
The company credits the growth in readership with its improved financial performance since the acquisition, with revenue growing from RMB1.6 billion ($236 million) for the 12 months ended December 2015 to RMB2.6 billion the following year. Over the same period, the company went from a net loss of RMB354 million to a net profit of RMB38 million.
Recent investment activity in the ebook space includes a funding round - reported to be worth RMB800 million - for Zongheng Literature. It was led by Sequoia Capital China. Zongheng was established in 2008 by movies-to-gaming company Perfect World, sold to Baidu in 2013, and reacquired by Perfect World last year.
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