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Tencent Music sets U$1.1b IPO at bottom of price range as markets gyrate

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Tencent Music will debut at a valuation of about US$21.3 billion, falling short of the US$23.3 billion of Spotify Technology, the Swedish peer that's also an investor in the Chinese company.

Hong Kong

TENCENT Music Entertainment Group and existing investors raised about US$1.1 billion after pricing a US initial public offering at the bottom of a marketed range, succumbing to the same global market turbulence that has sapped enthusiasm for stock debuts.

China's largest music-streaming service, which is backed by Tencent Holdings Ltd, and current holders sold 82 million American depositary shares at US$13 apiece, according to a statement. The shares were offered at US$13 to US$15 each. Tencent Music opted to price lower after initially guiding fund managers that orders were coming in around the midpoint of the marketed range.

Tencent Music will debut at a valuation of about US$21.3 billion, falling short of the US$23.3 billion of Spotify Technology, the Swedish peer that's also an investor in the Chinese company. Its less-than-optimal IPO pricing doesn't bode well for mainland companies considering their own coming-out parties, and follows recent lacklustre debuts by the likes of Mogu Inc.

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"The pricing is primarily due to weak general market sentiment," said Vey-Sern Ling, an analyst with Bloomberg Intelligence. "The secondary reason is market scepticism about music streaming platforms, due to the poor experience with Spotify, which is below its IPO price."

The deal adds to the US$8 billion raised in US first-time share sales by Chinese companies this year, more than double the same period in 2017, data compiled by Bloomberg show. It's the biggest year for mainland firms since 2014, when Alibaba Group Holding priced the world's largest IPO, the data show.

In the coming year, major tech corporations from Uber Technologies to China's ByteDance are said to be considering IPOs - both to raise capital and offer longstanding backers an exit.

Tencent Music, the online music arm of China's largest social media company, had been one of the year's most anticipated first-time share sales. Its growth in China mirrors inroads by Spotify in the US, where streaming has helped music sales grow at their fastest rate since the 1990s.

The Chinese company, however, has a more diverse business. It focuses on three main experiences: Online music through products such as QQ Music that also help users discover tunes; online karaoke sites like WeSing, where people can sing virtually with friends, celebrities or strangers; and live-streamed performances. The company counted 872 million monthly active users, combining the music service and social entertainment platform, in the three months ended in June.

Its net income more than tripled in the first nine months of the year to US$394 million, while revenue nearly doubled to about US$2 billion, according to an exchange filing. Its platforms are becoming important vehicles for pop stars such as Katy Perry and Rihanna to reach a Chinese audience, alongside homegrown artists such as Jason Zhang and Joker Xue.

Investors "do not understand fully that Tencent Music has a very different business model than Spotify, which allows it to make sustainable profits", Mr Ling said.

Major shareholders include Tencent, which owned roughly 59 per cent before the offering. Spotify held about 8.9 per cent, the filing shows. Morgan Stanley, Goldman Sachs Group, JPMorgan Chase, Deutsche Bank and Bank of America are among the underwriters of the offering. BLOOMBERG