China’s Tencent Music Edges Towards IPO (Report)

Tencent Music, the music distribution business of China’s social media giant Tencent, could be headed for an initial public offering later this year.

The Wall Street Journal reported that Tencent expects to audition investment banking advisors within the next month. It would aim to float the music division by the end of the year.

The share sale would raise fresh capital and value the business at over $25 billion. Private cash raising exercises have recently valued Tencent Music in that range, in a jump from valuations before the flotation of Europe’s Spotify.

The report suggested that Tencent Music is most likely to be listed on a U.S. stock exchange, but said that the decision has not yet been finalized. Many tech companies have taken advantage of U.S. securities rules that allow multiple share classes. That permits founders and management to hold on to corporate control, despite having sold off a majority of the equity.

Tencent, currently China’s largest company, is listed in Hong Kong. Last year it floated off online publishing unit Tencent Literature in Hong Kong, where its shares nearly doubled on initial trading.

In a deal last year, Spotify took a 9% stake in Tencent Music, and Tencent took a 7.5% stake in Spotify. That implied a $12 billion valuation for Tencent Music. Tencent owed some 62% of Tencent Music at the end of 2017.

Tencent Music is by far China’s biggest music streaming service and takes credit for helping to convert a largely pirated market into one where increasing numbers of people are willing to pay for music. It also has the advantage of being easily accessed on Android, which are in the majority in China, and Apple devices. Spotify has not yet launched in China and Apple Music is far behind.

Tencent Music  in its current form was established after a merger with streaming rival China Music in 2016. Since then it has cemented its leadership position by adding to and renewing deals with international studio groups Universal Music, Warner Music and Sony Music. It also has deals with China’s Huayi Brothers Music and Korea’s YG Entertainment.

Tencent had no comment when contacted by Variety.

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