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China Literature soars in HK debut after Tencent spinoff

[HONG KONG] China Literature Ltd. jumped as much as 100 per cent in its Hong Kong debut after raising HK$8.3 billion (S$1.45 billion) in an initial public offering.

The stock rose as high as HK$110, or double the HK$55 price in the IPO, before trading at HK$104 as of 10.50 am. China Literature was spun out from Tencent Holdings Ltd and other shareholders with the Chinese social networking company retaining a majority stake. Tencent shares were little changed.

China Literature is the mainland's biggest publisher of e-books, offering a similar business model to Inc's Kindle Store. The Shanghai-based company will invest more into using data to analyze user preferences, work with Tencent's WeChat and QQ instant messaging giants to make reading a more sociable pastime, and convert popular titles into anime, movies or games in collaboration with Tencent.

"Demand is especially strong since Hong Kong is in a bull market," said Paul Pong, managing director at Pegasus Fund Managers Ltd in Hong Kong. "And there are not many profitable tech companies, so there's a lot of upside." Morgan Stanley, Bank of America Corp, Credit Suisse Group AG, China International Capital Corp and JPMorgan Chase & Co were joint global coordinators of the offering.

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China Literature had profit of 213.5 million yuan ($32 million) in the first half of this year, compared with a 2.4 million yuan loss for the same period in 2016, according to its prospectus. The company was created through the merger of Tencent's online literature business with Carlyle Group LP-backed Cloudary Corp.

China Literature had 9.6 million works and 6.4 million writers as of June 30 and customers can pay for an entire book or buy a few chapters at a time to see if they want to keep reading.

"We can study our users' social network and understand their preference and recommend to them what their friends like to read," said Co-Chief Executive Officer Wu Wenhui in an interview on Wednesday. "We already have compiled a great amount of user data, which will enable us to study what they like." The company also wants to leverage its content into other forms of entertainment, such as movies, TV series and anime, as Tencent aspires to create a Marvel-like empire. Shenzhen-based Tencent became China's second-biggest technology company on the strength of its WeChat messaging app, which since has morphed into a portal for shopping, banking, gaming and consuming entertainment.

China Literature will select some content, and co-invest or co-produce movies, anime series, said co-CEO Liang Xiaodong. He added that his company is closely working with Tencent's film and video units.

"User demand for content is getting very strong, especially original material," Liang said in an interview with Bloomberg Television. "Our content can easily be converted into movies and games to maximize coverage." China Literature attracted strong interest from retail investors, who placed orders for more than 600 times the stock initially available to them in the IPO, people with knowledge of the matter said earlier. The portion of the deal reserved for institutional money managers also is oversubscribed by several times, the people said.