Tencent Music, the music streaming arm of Chinese internet giant Tencent, is reportedly filing for an IPO application with the U.S. Securities and Exchange Commission on July 6th.
In December 2017, Li Yujie, an analyst with RHB Research Institute Sdn in Hong Kong, told Bloomberg, ‘’Tencent Music has a dominant status in China. It could be one of the most-anticipated IPOs [in 2018]’’.
This prediction of an IPO proved accurate, only about half a year later, as the spin-off counts the likes of Morgan Stanley and Goldman Sachs as lead underwriters for its upcoming public fundraising.
While the investment banks are forecasting a conservative price range of between US$29 billion to US$31 billion, the market generally has higher expectations of this company, looking to benchmark the valuation against Swedish music streaming company Spotify.
Other media outlets have also reported on Tencent Music’s potential to surpass both Spotify and Apple in China and the possibility of it listing as an independent entity, spinning off as a standalone company, away from parent Tencent.
Tencent Music reported impressive revenue growth in Q4 2017, a 51% increase in revenue to RMB 66.4 billion (US$10 billion) specifically, leading to close to a double in its profits.
This, however, isn’t the first time Tencent spin-offs a unit to go public. Back in 2016, Tencent also spun off its online literature unit, rebranded as China Literature, to get listed in Hong Kong in 2017.
In essence, despite the wide publicity and keen anticipation, Tencent Music going public is but one of the many Chinese tech companies joining the much-hyped IPO wave this year that already includes Chinese smartphone maker Xiaomi, Chinese lifestyle platform Meituan-Dianping, Chinese boutique investment bank China Renaissance and even Tencent-backed Chinese e-commerce platform Pinduoduo.
A good or bad time to raise?
This enormous saturation in the capital markets might reverse the growing IPO craze, given the looming trade war between the U.S and China – the very countries the unicorns are looking to list- that could trigger the drying up of funds at least in the short-term.
Hong Kong’s interbank interest rates recently rose consecutively over the past 16 sessions, spiking to unprecedented levels since the last subprime crisis, according to a Bloomberg report – resulting in speculations whether the Hong Kong bourse can continue to support more mega IPO deals with the likes of Xiaomi and Meituan-Dianping.
Chinese media company, All weather TMT, recently commented on the possibility of investors panic – much like the much-feared bank run, which might render the herculean efforts by these prominent startups void in their push for further growth.
This might not be too far-fetched with the dismal performance of publicly listed firms being dime a dozen, at least in recent times.
After all, as of May 2018, 14 out of 21 of the technology companies that listed last year went below their initial share price in the public markets. On average, these tech giants experienced a 20 percent drop in their issue price. Some examples include Qudian, Yixin, and Sogou. It’s imperative to highlight that even ZhongAn Online saw its share price falling, despite having a much better oversubscription rate in its IPO stock sales when compared with the upcoming Xiaomi, at 392 times against Xiaomi’s 8.5 times.