NetEase’s online music business kickstarts billion-dollar IPO plans

HONG KONG—The online music business of Chinese internet company NetEase Inc.

has restarted its listing plans and aims to launch an initial public offering in Hong Kong before the end of this year, according to people familiar with the matter.

Cloud Village Inc., which operates a music streaming platform similar to that of Spotify Technology HER

, filed for an IPO in the city in late May and expected to take investor orders in the first half of August. The deal was pulled on Aug. 9 amid a huge sell-off in Chinese internet tech stocks that was sparked by a flurry of regulatory actions by Beijing against many new-economy companies.

Market conditions have since stabilized. Cloud Village is aiming for the same valuation and deal size as last time around, people say. The company, whose shareholders include Alibaba Group Holding Ltd., Baidu Inc.

BIDU -2.70%

and private equity firm General Atlantic, is aiming to raise $1 billion for a market valuation of $5-6 billion, according to people familiar with the matter.

NetEase did not respond to an emailed request for comment earlier on Tuesday. After The Wall Street Journal reported on Cloud Village’s listing plans, the company filed a revised IPO prospectus with the Hong Kong stock exchange, indicating the deal is back on track. .

If the deal is successful, it would be the biggest IPO for a Chinese internet company since the ill-fated U.S. IPO of ride-hailing firm Didi Global. Inc.

end of June.

Under Hong Kong’s listing rules, companies have six months to go public after filing an application. Companies can request extensions, which are granted at the discretion of the exchange.

Since the summer, Chinese authorities have rolled out regulations and guidelines for companies with large volumes of user data that plan to go public on exchanges outside of mainland China. The regulators’ actions came after Didi registered in New York without obtaining government data security clearance. At the time, there was no formal requirement for companies to seek such approval.

Over the weekend, China’s Cyberspace Administration released draft internet data security regulations under which Chinese companies seeking to list in Hong Kong could be subject to cybersecurity review. The draft rules did not specify when this would be necessary, but said companies planning to go public in the city are obligated to seek a cybersecurity review if there are national security implications.

The regulator previously said in July that Chinese companies with data on more than a million users must obtain a security clearance if they plan to register in a foreign country. This was widely seen by the industry as a requirement for U.S. IPOs.

Cloud Village has resolved data security issues with Chinese regulators, according to some people familiar with the matter.

The company is a small rival of Tencent Music Entertainment Group,

a US-listed subsidiary of Tencent Holdings ltd.

Cloud Village said in its listing prospectus that 185 million users logged into its NetEase Cloud Music online music platform at least once a month in the first half of 2021 and 26 million users paid for it. his services monthly.

The company estimated that it held a 20.5% share of China’s online music service industry revenue in 2020, compared to 72.8% for Tencent Music. Cloud Village said it was a relatively late entrant to the market, having started offering its services in 2013, but has become the second largest player in the country. It reported the equivalent of $767 million in revenue and a net loss of $462 million last year.

NetEase, which is listed in the United States and Hong Kong, is one of the best performing Chinese internet stocks this year. Shares of the Hong Kong-listed company have soared 24% year-to-date, compared with an 11% decline for Tencent and a 20% decline for the Hang Seng Tech index over the same period. NetEase makes most of its money from online games and has e-commerce and other Internet businesses.

Cloud Village is expected to remain a NetEase subsidiary after its IPO, according to its prospectus, which said NetEase’s stake would likely drop from 88% to around 62.5% after listing.

Beijing’s tougher stance against overseas listings of Chinese companies has led several companies to abandon plans to go public in New York and look to Hong Kong, a semi-autonomous Chinese territory. Ximalaya Inc., a popular audio and podcast platform, filed for an IPO in the former British colony in September, after initially seeking to list in the United States in April.

Write to Jing Yang at [email protected]

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