A Tencent sign is seen in Jiaxing, Zhejiang province, China. Picture: REUTERS
A Tencent sign is seen in Jiaxing, Zhejiang province, China. Picture: REUTERS

Hong Kong -Tencent Music Entertainment, which owns China’s most popular music apps, has filed for a US initial public offering (IPO), seeking funds to develop content and new services, in what is expected to be one of the biggest US listings by a Chinese company this year.

Tencent's IPO comes as the music industry gets back on track with more listeners streaming music

The music arm of tech giant Tencent Holdings, which plans to list either on the Nasdaq or the NYSE, set a placeholder amount of $1bn for registration purposes. Sources said last month it was hoping to raise $2bn.

With streaming apps QQ Music, Kugou, Kuwo and karaoke app WeSing, Tencent Music is China’s largest online music platform, boasting more than 800-million monthly users.

It is often compared to Spotify, but the Chinese firm offers more in the way of socially interactive services that makes it profitable while its Swedish counterpart is not.

Music-centric social entertainment services, including virtual gifts and premium membership, accounted for just more than 70% of the $1.65bn in revenue it made in 2017, its filing with the US Securities and Exchange Commission said.

Profit after tax came in at $199m. The filing also showed that only 3.6% of Tencent Music users pay for music.

For the first half of this year, revenue jumped 92% to $1.3bn while profits after tax climbed roughly fourfold to $263m.

By comparison, Spotify, with which it has a cross shareholding deal, lost €90m ($104m) in the second quarter of this year on revenue of €1.3bn.

The number of Tencent Music shares to be sold was not disclosed and potential valuations were unclear. Spotify is now valued at $31bn, with shares gaining about 8% since its US debut in April.

Chinese companies have raised $7.5bn in US markets this year, the biggest amount since 2014, according to Refinitiv data.

These include video streaming company iQiyi, which raised $2.4bn, electric vehicle start-up Nio which raised $1bn, and online group discounter Pinduoduo which raised $1.63bn.

Tencent Music’s IPO comes as the global music industry gets back on track with more listeners streaming music through smartphone apps compared to a few years ago when the market was dominated by pirated music. Its apps have more than 20-million tracks from both international and domestic music labels, the filing said, while millions of users go to the karaoke app WeSing daily — to have karaoke parties.

Bank of America, Deutsche Bank, Goldman Sachs, JP Morgan and Morgan Stanley are acting as the lead sponsors of the deal.

Reuters