MS Morgan Stanley

HONG KONG—A music-streaming service backed by Chinese Internet giant Tencent Holdings Ltd. is planning an initial public offering in the U.S. that comes as competition heats up to win the ears of Chinese consumers, according to people familiar with the matter.

China Music Corp., which owns Chinese online music services Kugou and Kuwo, has hired Wall Street banks Goldman Sachs Group Inc. and Morgan Stanley for an IPO that could take place later this year, the people said.

The amount of funds that could be raised by CMC remains in flux. Some people familiar with the situation gave potential sizes for the offering of between $300 million and $600 million.

CMC's plans to go public come as competition intensifies in China's online music market, where hundreds of millions of smartphone users listen to music with mobile apps. While revenue from online music in China is still small compared with the U.S., Chinese companies such as CMC are trying to secure their positions in a growing market that could become lucrative in the future. CMC's Kugou and Kuwo are among China's top mobile music apps. The country's biggest Internet companies—Tencent, online shopping firm Alibaba Group Holding Ltd. and search provider Baidu Inc.--all operate their own music-streaming businesses.

Listing in the U.S. could become more attractive than other venues because China's securities regulator has discussed potentially clamping down on backdoor listings at home. A logjam of 700-plus businesses aiming for China IPOs has deterred some looking to reIist domestically, as has the delay in plans to launch a Shanghai board for fast-growing and sometimes unprofitable tech companies. The U.S. market also tends to be more welcoming to smaller initial public offerings, whereas investors in Hong Kong tend to prefer larger deals.

Wall Street banks are also more willing to underwrite smaller initial public offerings in the U.S. because New York listings have much higher fees than those in Hong Kong or Shanghai. Companies tend to pay around 7% of the funds raised to banks in U.S. listings, while Hong Kong deals can earn as little as 2% and Shanghai offerings sometimes even less.

Other Chinese companies preparing to launch U.S. IPOs include GDS Services Ltd., a provider of data-center infrastructure and services in China, which is working with Credit Suisse Group AG and J.P. Morgan Chase & Co. on a U.S. listing scheduled for later this year, according to people familiar with the matter. That IPO is expected to raise roughly $300 million, the people said.

51Talk English International, Inc., an online English-teaching company, is also working with Credit Suisse and Morgan Stanley on a smaller U.S. IPO scheduled for later this year that is likely to raise between $100 million and $200 million, according to separate people familiar with the matter. The biggest of these is logistics company ZTO Express, which is planning a U.S. IPO that could raise more than $1 billion later this year or in early 2017.

CMC's investors include Tencent, according to people familiar with the matter. Tencent also owns QQ Music, a Spotify-like service that lets users stream most songs for free.

Global music streaming revenue grew 45.2% in 2015, accounting for more than 40% of the world's digital music sales, according to a report by the International Federation of the Phonographic Industry.

Juro Osawa contributed to this article.

Write to Kane Wu at Kane.Wu@wsj.com

(END) Dow Jones Newswires

May 11, 2016 09:55 ET (13:55 GMT)

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