Tencent-Backed Music-Streaming Service Plans U.S. IPO
May 11 2016 - 10:10AM
Dow Jones News
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)
Copyright (c) 2016 Dow Jones & Company, Inc.
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