30 October 2017

Tencent to spin off e-book platform on HKEX

China Literature, a unit of technology giant Tencent, is listing its equity on the Hong Kong Stock Exchange (HKEX) through an initial public offering worth about HKD 8.33 billion (USD 1.07 billion). According to the terms, the online publisher is issuing 135.96 million new shares, while its existing investors, Shanghai Trust Bridge Partners and the Carlyle Group, are offering to sell a further 15.41 million through the transaction.

The listing price has yet to be determined but the prospectus indicates it could range from HKD 48.00 to HKD 55.00 per share. Altogether, the shares on offer account for 16.7 per cent of China Literature’s enlarged capital. In addition, underwriters, including Morgan Stanley, Credit Suisse, JP Morgan and China Securities, are given the right to issue another 22.71 million shares under an over-allotment option, which could potentially push the IPO valuation up to HKD 9.57 billion.

China Literature expects to go public by 8th November 2017. If the deal does go through, it could become the second largest IPO on the HKEX completed since the beginning of this year, according to Zephyr, the M&A database published by Bureau van Dijk.

Previously known as China Reading, the group was formed in 2014 through the merger of Tencent’s online literature business with Carlyle Group’s Cloudary Corp and was at the time valued at about USD 2.00 billion, a person familiar with the matter told Bloomberg. As of 30th June 2017, the content aggregation and distribution platform operator had 6.40 million contributing writers and a library containing 9.60 million literary works.

Users spent a daily average of one hour on China Literature’s flagship product QQ Reading, making it the most popular e-reading application in China, according to industry consultant Frost & Sullivan, as cited in the prospectus. Some of its other applications include readnovel.com, qidian.com, qdmm.com and chuangshi.qq.com.

The group also has licensing agreements with other third-party distributors, including Baidu, Sogou and JD.com, all of which publish China Literature’s contents on their own platforms. Overall, China Literature had an average of 191.80 million monthly active readers in H1 2017, comprising 179.30 million mobile users and 12.50 million personal computer users.

It posted revenue of CNY 1.92 billion (USD 289.53 million) in the six months ended 30th June 2017, up 92.5 per cent on the CNY 999.59 million recorded during the same timeframe in the previous year. Net profit for the period totalled CNY 213.49 million, compared to a net loss of CNY 2.38 million in H1 2016.

China Literature is planning to use 30.0 per cent of the IPO proceeds to grow its online reading business, which includes expanding its network of writers and genres of e-books. The remaining amount has been earmarked for the development of its other entertainment products adapted from its online literary titles, potential acquisitions, investments and strategic alliances, as well as working capital and general corporate expenses.

© Zephyr