PAG invests $500m in China's iQiyi

The deal was announced in August 2022, with the private equity firm holding the right to subscribe to USD 50m in additional notes on the same terms within two months of closing. The notes convert into American Depository Shares (ADS) at a rate of 216.9 shares per USD 1,000 of principal, or approximately USD 4.60 per share.

The notes have a five-year tenor and a 6% coupon. PAG has the right to require iQiyi to repurchase in cash all or part of the notes at a price equal to 120% of the principal on or shortly after the third anniversary of issuance or 130% on or shortly after the fifth anniversary. A repurchase requirement is also triggered “in the event of certain fundamental changes,” according to a filing.

The conversion price represents a 20% premium to the volume-weighted average price for the 20 trading days ended August 29, 2022. At the time, iQiyi’s stock was at an all-time low, having lost 80% in value since the beginning of 2021 as all listed Chinese tech stocks were blighted by sell-offs.

Towards the end of 2022, iQiyi slipped as low as USD 1.65 but it has since recovered strongly. The stock closed on USD 6.86 on January 5, giving the company a market capitalisation of USD 5.49bn.

Founded in 2010, iQiyi is one of China’s largest providers of long-form streaming video content, with more than 100 million daily subscribing members. It produces, aggregates, and distributes a wide variety of professionally produced content, and it has become known for original dramas and shows. The company claims more than 50 in-house studios spearheading original content production.

Monetisation comes through membership services, online advertising services, content distribution, online games, intellectual property licensing, talent agency services, and online literature.

Baidu launched the business with support from Providence Equity Partners and took full control in late 2012 before merging iQiyi with PPStream. IQiyi went public on NASDAQ in 2018. Baidu retained a majority equity interest and voting control as of February 2022.

Several private equity firms have invested in iQiyi since it became a public company. These include Hillhouse Capital, Boyu Capital, IDG Capital, Everbright-IDG Industrial Fund, and Sequoia Capital China. Separately, the company has raised private funding for iQiyi Sports, an online sports media platform established in conjunction with Super Sports Media.

Weijian Shang, executive chairman of PAG, who has joined the iQiyi board, said of the latest investment: PAG aims to unlock value wherever we find the best opportunities. IQiyi is a market leader with great potential for growth. We will work with the company to further its goals of expanding the region’s leading online entertainment video service.”

For the 12 months ended December 2021, iQiyi generated CNY 30.5bn (USD 4.8bn) in revenue, up from CNY 29.7bn a year earlier. Membership services accounted for 54.7%, with 23.1% from online advertising, and 9.3% from content distribution. The company’s net loss – largely driven by content acquisition costs – narrowed from CNY 7bn to CNY 6.1bn.

Performance improved over the course of 2022, with founder and CEO Yu Gong claiming in November that the company had “completed an iconic turnaround,” with original blockbuster content contributing to significant net subscriber additions.

Revenue for the third quarter was CNY 7.5bn, down 2% year-on-year, but an operating loss of CNY 1.4bn had turned into an operating profit of CNY 309.7m. The net loss was CNY 395.6m, compared to CNY 1.7bn for the same period in 2021.

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• Topics
• Greater China
• PIPEs
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