Investors Lowball Tencent IPO -- WSJ
December 12 2018 - 3:02AM
Dow Jones News
By Corrie Driebusch and Maureen Farrell
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (December 12, 2018).
Tencent Music Entertainment Group priced its IPO at the low end
of expectations, capping a rocky process of going public but still
marking one of the biggest U.S.-listed debuts in recent years.
The Chinese music-streaming company's initial public offering
priced at $13 per American depositary share Tuesday afternoon, the
bottom end of its $13-to-$15 expected range. The offering raised
roughly $1.1 billion for the company and its selling
shareholders.
At $13 an ADS, Tencent Music is valued at $21.3 billion on a
fully diluted basis, according to Dealogic -- making 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.
Tencent Music will start trading on the New York Stock Exchange
on Wednesday under the symbol TME. It is part of internet giant
Tencent Holdings Ltd. and operates several popular apps including
QQ Music and an online karaoke platform.
It was created in mid-2016 after Tencent Holdings bought a
controlling stake in China Music Corp. and combined it with
Tencent's existing streaming business. The company recently boasted
more than 800 million total unique monthly active users.
Its road to public markets has been a turbulent one, and the
valuation 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 less than 0.1%. While Tencent Music's valuation
landed 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 20% below its $23 IPO price.
Tencent Music is reaping about $533 million in proceeds from its
IPO, with the rest going to selling shareholders.
Morgan Stanley served as the lead underwriter for the
offering.
U.S.-listed IPOs are 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 12, 2018 02:47 ET (07:47 GMT)
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