Tencent Music Entertainment is lowering the amount of capital in conjugation with the IPO. This could be a negative signal for Spotify (SPOT US), as a 9% shareholder and peer, if Tencent Music IPOs at a lower price than the previously rumored $28-32bn.
Tencent Music Entertainment (TME) has previously reported that it looks to make an IPO on NYSE with an estimated valuation of approximately $30bn. The Information wrote earlier in August;
U.S. investors have recently agreed to buy private stock in Tencent Music from earlier shareholders at a valuation between $28 billion and $30 billion, according to four people familiar with the matter. That’s up from $11.5 billion in December.
Initially Tencent Music Entertainment (TME) looked to take-in $3-4bn in its IPO. This amount has now been lowered to $2bn. Reuters point-out;
Tencent Music Entertainment Group, China’s biggest music-streaming company, is seeking to raise about $2 billion in a U.S. listing, according to three people close to the deal, down from the up to $4 billion that had been touted earlier.
Spotify (SPOT US) which we have written about earlier here, owns 9% of Tencent Music Entertainment (TME), which would at $30bn valuation be worth $2.7bn. That is almost 10% Spotify’s valuation.
If Tencent Music IPO valuation would be lowered, which is not clear as Reuter’s writes;
The company then was seeking a valuation of about $25 billion, according to IFR. The sources did not disclose whether the now smaller deal related to a lower valuation
This could potentially be a “double” negative for Spotify (SPOT US);
- Spotify’s stake in Tencent Music would be worth less
- Peers will be valued lower should Tencent Music chose to lower its valuation for the IPO
Summary: The lowering of capital raise for Tencent Music IPO could be seen as a negative catalyst for Spotify as it is both a shareholder and a peer company. This, on top of other risks for Spotify is something to keep eye on.