Tencent Music Entertainment, China’s leading music streaming company, is considering a secondary listing on the Hong Kong Stock Exchange.
Washington D.C.’s recent actions against certain Chinese companies could be driving the company’s decision. In an executive order issued Nov. 12, Pres. Donald Trump banned investors in the United States from purchasing stocks from companies he considers to be part of China’s “military-industrial complex” starting on Jan. 11 — and U.S. officials are reportedly considering adding Tencent Corp., the majority owner of Tencent Music, to the blacklist. Tencent Music’s interest in a secondary offering could be insurance against a broader ban.
News of the company’s potential secondary offering was first reported by Nikkei Asia. TME did not respond to a request for comment on the report.
Experts don’t think Tencent Music has much to worry about, however. Alex Poon, a Morgan Stanley analyst, believes Tencent Music is safe from delisting because “TME has no business in the U.S. at all. And TME is a much smaller company [than Tencent Corp.] at a $30 billion to $35 billion market cap.”
Needham analyst Vincent Yu also doesn’t think Tencent Music is threatened if Tencent Corp. is delisted. “With such small international exposure and an independent corporate structure, the impact would be very small,” he says.
Tencent Music gained the option to secondary list on the HKEX only recently. The HKEX changed its rules in October to allow Chinese corporations with “weighted voting rights” that are listed on the New York Stock Exchange, Nasdaq or the London Stock Exchange to secondary list on the HKEX exchange. A corporation has weighted voting rights if a shareholder’s voting power is disproportionate to the number of shares held. Until a recent rule change, the HKEX forbid listings from companies with weighted voting rights. In Nov. 2019, Alibaba — whose initial public offering went to the United States’ NYSE — became the first company to win approval for a secondary listing on the HKEX under the new rules.
The HKEX has in place numerous requirements to secondary list, including a market capitalization of at least $40 billion, or at least $10 billion with at least $1 billion of revenue. At the end of trading on Tuesday (Jan. 12), Tencent Music’s market capitalization was $35.2 billion; its 2019 revenue was $2.94 billion. The HKEX also requires that a Chinese corporation have certain shareholder protection standards for a secondary listing.