Tencent Music Readies Its IPO After a Turbulent Process

Date : 12/11/2018 @ 8:25PM
Source : Dow Jones News
Stock : Tencent Holding Ltd. (PC) (TCEHY)
Quote : 42.085  0.595 (1.43%) @ 10:19PM
Tencent Holding Ltd. (PC) share price Chart

Tencent Music Readies Its IPO After a Turbulent Process

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By Corrie Driebusch and Maureen Farrell 

Tencent Music Entertainment Group is set to go public in one of the biggest U.S.-listed IPOs in recent years, capping a rocky IPO process for the Chinese music-streaming company.

Tencent Music's initial public offering is slated to price Tuesday evening despite recent swings in the stock market. The company's American depositary shares are on track to price at the midpoint or low end of the company's $13-to-$15 expected range, according to people familiar with the offering.

At the $14 midpoint, Tencent Music would be valued at $22.9 billion on a fully diluted basis, according to Dealogic. That would make it one of the largest traditional IPOs by market value in the U.S. since Alibaba Group Holding Ltd. went public in 2014 at a whopping $169.4 billion. At $13 an ADS, Tencent Music would be valued at $21.3 billion.

Tencent Music is part of internet giant Tencent Holdings Ltd. and operates several popular apps including QQ Music and an online karaoke platform.

Its road to public markets has been a turbulent one, and the valuation it will likely fetch is lower than the $25 billion to $30 billion the company and its underwriters were seeking earlier this fall, according to people familiar with the company's plans. Since it publicly filed with the Securities and Exchange Commission in early October, stocks around the world careened. At the heart of the volatility are worries about trade-related tensions between the U.S. and China and slowing economic growth in China.

Since the beginning of October, the S&P 500 has fallen roughly 10%. Shares of Spotify Technology SA, Tencent Music's closest public peer in the music-streaming space, have tumbled nearly 30% in that period.

After it filed, Tencent Music postponed its offering for two months, hoping to wait out the volatility. Last Monday, it began its roadshow with the goal of completing what would likely be the last big U.S.-listed IPO of 2018.

Market conditions for Tencent Music's IPO still aren't ideal. As the company renewed its efforts to go public in early December, signs that U.S.-China trade negotiations were deteriorating caused another selloff. Many investors, jolted by the market's sharp swings and unwilling to make big bets or risk losing year-end returns, opted to sit out or pushed the company's underwriters to lower its price to buy into the offering, according to people familiar with the deal.

Markets have been calmer so far this week. On Tuesday, the S&P 500 slipped 0.1% in recent trading.

While Tencent Music's valuation will likely land below its prior targets, it has still nearly doubled in the past 12 months. Late last year, it was valued at $12.5 billion when it swapped stakes with Spotify, which recently owned roughly 9% of its stock.

The company's overall strength is allowing it to still go public in a market where many companies have opted to wait, people familiar with the offering have said. Even as sizable companies are preparing offerings for 2019, the public markets haven't recently been seen as hospitable for any but the marquee companies, according to bankers and investors.

Last week, Moderna Inc. staged one of the biggest IPOs for a biotechnology company, pricing shares in line with expectations but selling more stock than originally expected. But since Moderna's offering, its stock has struggled. On Friday it notched one of the worst-performing opening days for a company going public in 2018, dropping 19%. It remains more than 15% below its $23 IPO price.

Tencent Music's IPO would raise about $1.15 billion at the midpoint of its range, excluding an underwriters' allotment, according to a company filing. Based on that midpoint, the company expects to reap about $544 million in proceeds, and the rest would go to selling shareholders.

U.S.-listed IPOs are currently up 6.1% from their offering prices this year, and U.S-listed tech IPOs are up 7.3% through Monday, outperforming broader market indexes. But IPO performance is still far below highs from earlier this year. U.S.-listed Chinese IPOs, by contrast, have struggled and are down 13% this year through Monday, according to Dealogic data.

Write to Corrie Driebusch at corrie.driebusch@wsj.com and Maureen Farrell at maureen.farrell@wsj.com


(END) Dow Jones Newswires

December 11, 2018 15:10 ET (20:10 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.

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