NetEase unit Cloud Village pauses Hong Kong IPO as China’s antitrust scrutiny weighs on internet firms’ fundraising plans

  • NetEase’s music-streaming unit Cloud Village was targeting up to US$1 billion proceeds from Hong Kong stock offering
  • Beijing’s crackdown on the tech sector abetted a 60 per cent plunge in funds raised from Hong Kong IPOs in July from a year earlier

Cloud Village, the music-streaming subsidiary of NetEase, has put its Hong Kong initial public offering on hold because of unfavourable market conditions, according to people familiar with the decision. The move comes amid challenging times for the tech sector that has been hit by anti-monopoly concerns.

The operator of NetEase Cloud Music originally planned to raise as much as US$1 billion, after winning the Hong Kong stock exchange’s approval, the Post had previously reported. Cloud Village’s decision to shelve the initial public offering (IPO) comes after a quiet July, as fundraising in the city plunged 60 per cent year on year to US$2.8 billion from 17 deals, data from Refinitiv shows.

The crackdown by Beijing on its tech and education services sectors has weighed on the Hang Seng Index, which has lost 3 per cent year to date, after dropping to an eight-month low in late July. Some other companies such as Hello Inc, the bike-sharing firm backed by Ant Group, and e-commerce platform Meicai have also postponed their IPO plans amid regulatory scrutiny.

It was not immediately clear if Cloud Village, which is yet to post a profit, plans to resume the share sale at a later date, one of the sources said. Executives from Cloud Village were not immediately available for comment.

A file photo from 2006 of NetEase CEO William Lei Ding. NetEase owns 62.5 per cent of its music-streaming subsidiary.

The deal’s joint sponsors, Bank of America, CICC and Credit Suisse, either declined to comment or were not immediately available for comment.

Some companies still went ahead with their listing plans though. Last week Chinese electric-vehicle maker Li Auto raised about US$1.5 billion in Hong Kong, exceeding the US$1.1 billion from its US IPO a year ago. The company’s Nasdaq-listed shares have risen about 80 per cent since July 2020, outperforming the broader US market as the Chinese challenger to Tesla continues to raise funds to compete in the world’s biggest EV market.

“The regulatory environment of anti-monopoly is tightening,” Cloud Village said in its draft prospectus. “Regulators are increasingly paying attention to the exclusive licensing and sub-licensing arrangements for the Chinese online music market.” Cloud Village, however, has not been subject to any anti-monopoly related actions in China.

The country’s antitrust watchdog in late July ordered Tencent Group and its subsidiary Tencent Music Entertainment Group, which is Cloud Village’s closest rival, to relinquish its exclusive music licensing deals with global record labels within 30 days. It was also fined 500,000 yuan (US$77,143).

The NetEase unit has warned that it may continue to incur losses and net operating cash flow for the current financial year ending December all the way through to 2023. Net loss more than tripled to 1.7 billion yuan in the quarter ended March, while its 2020 net loss was 3 billion yuan.

Cloud Village, 62.5 per cent owned by NetEase, had originally planned to use the IPO proceeds on expanding its music content.

Author: Georgina Lee, SCMP

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