This Reuters report said Tencent Music Entertainment was under pressure to decide whether to press ahead with its U.S. listing or wait for calmer markets.
The China-based streaming company, often described as China’s answer to Spotify, had been aiming for a U.S. initial public offering worth up to $2 billion. It first targeted an October debut, then moved the timetable to November after market conditions failed to improve.
By late November 2018, the deal was facing weak sentiment toward tech stocks and broader market jitters ahead of the G20 meeting in Buenos Aires. According to two sources involved, Tencent Music and its advisers had discussed shifting the transaction into early 2019. No final decision had been made.
One person involved said the company was focused on valuation rather than speed, saying: “Of course they want to get the deal done within the year, but meanwhile, they don’t want to rush for the listing. What they care about a lot is (getting) the right valuation, rather than the fast pace of the listing.” Another source said: “We continue to monitor.”
Tencent Music declined to comment. The sources asked not to be named because the deliberations were private.
The timing debate reflected a difficult year for large New York listings. December is usually a weak month for major U.S. IPOs, even though Hong Kong and Tokyo can remain active late in the year. The report noted that SoftBank’s Japanese telecoms business had a $21 billion Tokyo IPO scheduled for December 19.
Refinitiv data showed that U.S. markets had hosted only three December IPOs above $1 billion over the previous decade, with the latest pricing on December 11. One reason for waiting until January was that investors, after a difficult year, might be more willing to back new deals once the calendar turned to 2019 and those investments could count toward the new year’s performance.
Bankers also work on a calendar-year basis, and 2018 had already become the strongest year in three years for global IPO fundraising, with $177 billion raised. Many advisers had already met or exceeded their targets.
The Tencent Music process also mirrored the wider IPO market in 2018. Early gains had raised expectations, but sentiment weakened by February as investors worried about rising U.S.-China trade tensions and higher interest rates.
Tencent Music appointed banks for the deal in May 2018, when optimism was still high and markets were expected to stabilize. At that stage, sources said the company could raise as much as $4 billion, which would have made it the biggest Chinese IPO in the United States that year. By September, the target had been cut to about $2 billion.
Chinese companies had raised $7.9 billion in U.S. IPOs in 2018, making it the second-best year on record after 2014. That year, Chinese listings raised $29 billion, driven by Alibaba’s $25 billion IPO.
Investor interest in Tencent Music was helped by its more than 800 million monthly users and its profitability, especially when compared with rivals such as Spotify. Spotify had recently come under pressure after telling investors it would keep sacrificing margins to invest heavily.
Tencent Music also held a 7.5 percent stake in Spotify. The Swedish company had initially outperformed after its April IPO, but later traded 2 percent below its reference price and 34 percent below its July peak. Over the same period, the Nasdaq Composite was flat. Tencent, which owns 58 percent of Tencent Music, had fallen 31 percent since Spotify floated in 2017.
The report was filed from Hong Kong by Jennifer Hughes, Julie Zhu and Julia Fioretti, with additional reporting by Greg Roumeliotis in New York. Editing was by Stephen Coates.
