Chinese music group withdraws $ 1 billion from Hong Kong IPO after tech crackdown

IPO Updates

China’s second-largest music streaming service has canceled an initial public offering of $ 1 billion in Hong Kong as concerns over a growing regulatory crackdown on the country’s tech companies rocked investor confidence.

Cloud Village, the music streaming business of tech group NetEase, will not proceed with an IPO that was scheduled to launch this week due to a disappointing response from investors, according to three people familiar with the matter. The company intended to wait for better market conditions before possibly restarting its listing plans, one of the people said.

The IPO was reportedly one of the biggest sellers of shares in Hong Kong this year and the first major Chinese tech company since Beijing launched a crackdown on foreign listings last month.

Strict new rules from Chinese regulators, put in place following the US IPO of ride-sharing company Didi Chuxing in June, caused a sharp sell-off from Chinese tech and internet groups. All planned IPOs in the United States by mainland Chinese companies have been suspended.

Wall Street bankers have started redirecting billions of dollars in planned listings from New York to Hong Kong following the effective freeze on US listings by Chinese tech groups.

However, investors’ lack of appetite for Cloud Village’s IPO could indicate that escalating tensions between Washington and Beijing may not be a boon for Hong Kong, which has long sought to attract Chinese tech companies. away from the Nasdaq and the New York Stock Exchange.

Chinese tech companies planned to raise at least $ 9 billion by registering in Hong Kong this year, according to Dealogic data.

“Now we have an IPO takedown, and I don’t think that’s the end of it,” said Dickie Wong, head of research at brokerage Kingston Securities. Wong said he expected more Chinese tech groups to delay or cancel their listing plans in the coming months.

“It is no longer an easy task to list Chinese technology companies, whether in Hong Kong [or elsewhere], because of regulatory risk, ”he added.

ByteDance, the Chinese parent company of TikTok, is preparing for an IPO in Hong Kong early next year, the Financial Times reported. His listing plans have been hampered by delays and earlier this year he halted preparations for a possible float in New York or Hong Kong after data security warnings from Chinese regulators.

A fund manager in Hong Kong said the Cloud Village deal appeared to be “in trouble” last week. The bankers had “asked what price we would take it rather than begging for an allowance,” the fund manager said.

A banker close to the deal said some of Cloud Village’s top investors would not agree to their shares being blocked, which would have kept them from selling for several months after the IPO.

Talks with investors came at the same time as shares of Hong Kong-listed short video app Kuaishou fell a record 15% last week after a post-IPO block expired, allowing major funders to sell themselves.

The last-minute turnaround for Cloud Village comes despite antitrust regulators dealing a heavy blow to rival Tencent last month, which bankers expected to boost the valuation of the former. On June 24, China’s State Administration for Market Regulation ordered Tencent Music to relinquish exclusive rights to music labels within 30 days.

However, NetEase was caught in a wave of selling Chinese tech stocks last week as Beijing signaled it would crack down on online gaming. Shares of NetEase, the second largest games group in China after Tencent, have fallen about 11% since the news broke last Tuesday.

A person familiar with Cloud Village’s IPO plans said the company “is closely monitoring market conditions and looking for an optimal launch window.” NetEase did not immediately respond to a request for comment.