Tencent prepares for IPO of PE-backed music business

The Chinese internet giant said in a filing that it had submitted a proposal to the Hong Kong Stock Exchange to spin out Tencent Music Entertainment Group through an IPO on a US bourse. No details were given as to the size, pricing or timing of this offering. Previous reports indicate the company will seek a valuation of around $30 billion.

Earlier this year, Spotify disclosed that it completed a share swap with Tencent Music last December. Spotify took a 9% stake in Tencent Music at a valuation of $12.3 billion, while the Chinese company acquired a combination of new and existing shares in Spotify equal to a 7.5% interest. 

PAG’s involvement came through its acquisition of China Music Corporation (CMC), owner of the largest library of music broadcasting rights in the country. The PE firm nearly passed on CMC because the check size was below its usual minimum deployment requirement, but eventually decided that the growth opportunity couldn’t be ignored.

In 2016, Tencent purchased a majority stake in the company at a reported valuation of $2.7 billion, far higher than that PAG paid on entry. The deal brought together China’s three leading mobile music apps – Tencent’s QQ Music and CMC’s Kugou and Kuwo – under Tencent Music Entertainment Group. PAG swapped its shares in CMC for a stake in the new entity.

Tencent owned 53.76% of Tencent Music, according to its 2017 annual report. The company doesn’t disclose individual performance data for Tencent Music, but it said that total fee-based value-added services (VAS) subscriptions grew 22% in 2017 to 135 million in 2017 primarily due to video and music streaming services.

Tencent Music is said to have accounted for 78% of total music streaming revenues in China last year. It makes money through subscriptions, virtual gifting sales, and sub-licensing to other online platforms that want to stream music owned by one of the record labels that work with it.

This is not the first time Tencent has spun out one of its subsidiaries. Last year, China Literature – which sells electronic books in much the same way as Amazon’s Kindle Store – raised HK$8.3 billion ($1.1 billion) through a Hong Kong IPO. The Carlyle Group and Trustbridge Partners are both investors in the company.

PAG is currently raising its third pan-Asian fund, which has a target of $4.5 billion. The private equity firm closed its previous vehicle at $3.66 billion in late 2015, having initially sought $3 billion.

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• Topics
• Greater China
• IPO
• Technology
• Media
• China
• Tencent
• TMT
• PAG