Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Sunday evening at 6pm, the largest firm in the Emerging Markets firmament - <a href="https://www.smartkarma.com/entities/26" target="_blank" data-smartkarma-citation="entities:26:1">Tencent Holdings Ltd (700 HK)</a> - announced a Proposed Spin-Off of its <a href="https://www.smartkarma.com/entities/27255" target="_blank" data-smartkarma-citation="entities:27255:1">Tencent Music Entertainment (1426984D CH)</a>  ("TME") subsidiary. <blockquote>
This announcement is made pursuant to <a href="http://en-rules.hkex.com.hk/net_file_store/new_rulebooks/h/k/HKEX4476_3734_VER10.pdf" target="_blank">Practice Note 15</a> (“PN15”) to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).
The board of directors (the “Board”) of Tencent Holdings Limited (the “Company”) is pleased to announce that the Company has submitted a proposal to The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) pursuant to PN15 in relation to the proposed spin-off by way of a separate listing of its online music entertainment business operated by its majority-owned subsidiary, Tencent Music Entertainment Group (“Tencent Music”), a leading online music entertainment platform in China, on a recognized stock exchange in the United States through a registered public offering (the “Proposed Spin-off”), and that the Stock Exchange has confirmed that the Company may proceed with the Proposed Spin-off.
</blockquote>This is big news. It has long been rumored but now it is official.<ul>
<li>It was out in the news Tuesday because of a "<a href="https://tech.sina.cn/i/gn/2018-07-03/detail-ihevauxi3343341.d.html" target="_blank">scoop</a>" on Sina. That scoop suggested TME would file an IPO application as early as July 6th with the SEC. The underwriters are said to be Goldman Sachs and Morgan Stanley (the FT had earlier said GS, MS, and BoAML were likely to be joint UWs).</li>
<li>Insiders have admitted recently in Chinese media the IPO had been in planning stages for two years or more.</li>
<li>Last September, Bloomberg had an <a href="https://www.bloomberg.com/news/articles/2017-09-01/tencent-music-is-said-to-seek-pre-ipo-funds-at-10-billion-value" target="_blank">article</a> suggesting Tencent was trying to raise funds for TME for a pre-IPO funding at a valuation of US$10bn, ahead of a possible IPO in Hong Kong. Bloomberg had reported that Ming Pao had reported in April that TME was planning an IPO.</li>
<li>In March 2018, Tencent President Martin Lau had said that TME could be a candidate for a future spinoff.</li>
<li>The WSJ had an <a href="https://www.wsj.com/articles/tencent-music-entertainment-group-preparing-ipo-1524434289" target="_blank">article</a> in late April 2018 suggesting a beauty contest was being held for underwriters with a decision due by early June and an IPO in H2 2018. Reuters had an <a href="https://www.reuters.com/article/us-tencent-music-ipo/tencent-music-invites-banks-to-pitch-for-role-in-up-to-4-billion-us-ipo-ifr-idUSKBN1I10ZT" target="_blank">article</a> quoting the IFR which had reported the company was seeking bankers, and the IPO would seek to raise US$3-4bn at a valuation of US$25bn.</li>
<li>The FT <a href="https://www.ft.com/content/68ff4dd8-63e2-11e8-90c2-9563a0613e56" target="_blank">reported</a> June 1 that the company had chosen GS, MS, and BoAML to be joint UWs and the listing was expected to target a valuation of US$30bn.</li>
</ul>The IPO is said to value TME at US$29-31bn as a "conservative" number. This compares to <a href="https://www.smartkarma.com/entities/26772" target="_blank" data-smartkarma-citation="entities:26772:1">Spotify Technology SA (SPOT US)</a>'s listing valuation of US$29.5bn valuation (it was money-losing but did not raise capital).This compares to a US$12.3-12.5bn valuation in late 2017 when Spotify bought 9% of TME in a <a href="https://techcrunch.com/2017/12/08/spotify-tencent-share-swap/" target="_blank">share swap</a> transaction between the two companies (in that transaction, Tencent's 7.5% stake in Spotify valued it at US$20bn). This was made clear in SPOT's filing in February as <a href="https://www.ft.com/content/42085acc-1d00-11e8-aaca-4574d7dabfb6" target="_blank">reported</a> in the FT.A listing of TME could have all kinds of knock-on effects.<ul>
<li>It could mean a spinoff to Tencent investors.</li>
<li>That could possibly impact the Naspers/Tencent Holdco relationship.</li>
<li>It could mean a liquidity event for Spotify itself.</li>
<li>It could mean a large profit event for Tencent in H2 as it deconsolidates TME.</li>
</ul>Lots of moving parts here.

Sunday evening at 6pm, the largest firm in the Emerging Markets firmament - Tencent Holdings Ltd (700 HK) - announced a Proposed Spin-Off of its Tencent Music Entertainment (1426984D CH)  ("TME") subsidiary. 
This announcement is made pursuant to Practice Note 15 (“PN15”) to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).
The board of directors (the “Board”) of Tencent Holdings Limited (the “Company”) is pleased to announce that the Company has submitted a proposal to The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) pursuant to PN15 in relation to the proposed spin-off by way of a separate listing of its online music entertainment business operated by its majority-owned subsidiary, Tencent Music Entertainment Group (“Tencent Music”), a leading online music entertainment platform in China, on a recognized stock exchange in the United States through a registered public offering (the “Proposed Spin-off”), and that the Stock Exchange has confirmed that the Company may proceed with the Proposed Spin-off.
This is big news. It has long been rumored but now it is official.
It was out in the news Tuesday because of a "scoop" on Sina. That scoop suggested TME would file an IPO application as early as July 6th with the SEC. The underwriters are said to be Goldman Sachs and Morgan Stanley (the FT had earlier said GS, MS, and BoAML were likely to be joint UWs).
Insiders have admitted recently in Chinese media the IPO had been in planning stages for two years or more.
Last September, Bloomberg had an article suggesting Tencent was trying to raise funds for TME for a pre-IPO funding at a valuation of US$10bn, ahead of a possible IPO in Hong Kong. Bloomberg had reported that Ming Pao had reported in April that TME was planning an IPO.
In March 2018, Tencent President Martin Lau had said that TME could be a candidate for a future spinoff.
The WSJ had an article in late April 2018 suggesting a beauty contest was being held for underwriters with a decision due by early June and an IPO in H2 2018. Reuters had an article quoting the IFR which had reported the company was seeking bankers, and the IPO would seek to raise US$3-4bn at a valuation of US$25bn.
The FT reported June 1 that the company had chosen GS, MS, and BoAML to be joint UWs and the listing was expected to target a valuation of US$30bn.
The IPO is said to value TME at US$29-31bn as a "conservative" number. This compares to Spotify Technology SA (SPOT US)'s listing valuation of US$29.5bn valuation (it was money-losing but did not raise capital).This compares to a US$12.3-12.5bn valuation in late 2017 when Spotify bought 9% of TME in a share swap transaction between the two companies (in that transaction, Tencent's 7.5% stake in Spotify valued it at US$20bn). This was made clear in SPOT's filing in February as reported in the FT.A listing of TME could have all kinds of knock-on effects.
It could mean a spinoff to Tencent investors.
That could possibly impact the Naspers/Tencent Holdco relationship.
It could mean a liquidity event for Spotify itself.
It could mean a large profit event for Tencent in H2 as it deconsolidates TME.
Lots of moving parts here.

Tencent Proposes Spin-Off of Tencent Music Entertainment

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

Alibaba Group Holding  / Equity Bottom-Up

<ul>
<li>
Management Shake-up: Alibaba Group Holding (BABA.US) [Alibaba] announced that long-time CFO Maggie Wu will be stepping down in April 2022;</li>
<li>
Restructure: Alibaba also announced that it will be reorganizing its international and domestic e-commerce businesses; and</li>
<li>
Further Pressure:Just last month, Alibaba reduced its revenue growth forecast. The formation of a financial holding company will cause earnings to compress while capital requirements increase.</li>
</ul>



Management Shake-up: Alibaba Group Holding (BABA.US) [Alibaba] announced that long-time CFO Maggie Wu will be stepping down in April 2022;

Restructure: Alibaba also announced that it will be reorganizing its international and domestic e-commerce businesses; and

Further Pressure:Just last month, Alibaba reduced its revenue growth forecast. The formation of a financial holding company will cause earnings to compress while capital requirements increase.


Alibaba Group Holding – Palace Intrigue

China

Tencent Music Entertainment operates an online music entertainment platform in China. The Company offers platform that comprises of online music, recording, music-centric live streaming enabling users to discover, listen, sing, watch, perform, and socialize music.

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Tencent Music (TME US)

Tencent Proposes Spin-Off of Tencent Music Entertainment

Sunday evening at 6pm, the largest firm in the Emerging Markets firmament - Tencent Holdings Ltd (700 HK) - announced a Proposed Spin-Off of its...

Travis Lundy

Alibaba Group Holding – Palace Intrigue

ALIBABA: Alibaba announced that long-time CFO Maggie Wu will be stepping down in April 2022, and that it will be reorganizing its international and...

Thomas J. Monaco

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