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Tencent's IPO parade creates looser ties for growth and funding

Tencent Music becomes 12th listing in 2018, with WeChat at center of web

Tencent tends to spread investment over various targets with the goal of an IPO, while rival Alibaba focuses on retaining direct control of its units.

GUANGZHOU -- Chinese internet services group Tencent Holdings is constructing a loose federation of listed affiliates that will generate money for additional investments, with the aim of forging an empire touching virtually every aspect of an ordinary consumer's lifestyle.

The company, best known for its chat apps, made a splash Wednesday on Wall Street with the float of its streaming music arm, Tencent Music Entertainment Group. Despite the headwinds facing tech stocks, Tencent Music opened 8.5% above the offer price, giving it a market value of $23 billion.

"The possibilities of music are endless," Cussion Kar Shun Pang, CEO of Tencent Music, declared when he rang the opening bell. Tencent Music is an amalgamation of the Chinese group's music services, which began 15 years ago. QQ Music represents one core offering.

Tencent says it is having subsidiaries go public so they can raise funds for growth on their own. Tencent Music plans to strengthen relationships with partners such as Spotify Technology.

Tencent Music is the 12th company backed by the group to embark on an initial public offering this year, five more than last year. The roster includes food delivery app Meituan Dianping and electric vehicle startup Nio.

"Since the start of 2017, no investor ... has notched more tech IPO exits than the Chinese social giant moonlighting as an investment holding company," said U.S. research specialist CB Insights. At the time the analysis was written in August, the IPOs since 2017 were worth more than $20 billion combined.

The top cash cow for Tencent used to be online games, especially mobile games. But China's government toughened oversight of video games in March, which put new releases at a virtual standstill. Tencent is scrambling to develop earnings sources that fill the hole left by online games.

The internet group's strategy revolves around WeChat, the mainstay chat app with a user base of 1 billion people. WeChat introduced miniprograms on its platform last year, giving users easy access to services from the app's menus. That way, WeChat subscribers do not have to download and install new apps to use the same services.

Startups backed by Tencent have steadily found new homes within WeChat's miniprograms. Tencent says Partner with branded, unique content to extend and deepen our audience appeal.

Tencent tends to spread investment thinly over a wide range of targets with the goal of having them go public in the future, while rival Chinese tech behemoth Alibaba Group Holding focuses on retaining direct control of units under its umbrella.

While Tencent floated Meituan, Alibaba decided to convert Ele.me, a competing food delivery app, into a wholly owned subsidiary. Alibaba, which began in e-commerce, also has branched into physical stores that share synergies with its digital operations.

Tencent Music joins about 30 Chinese companies that listed in the U.S. this year. Altogether they have raised roughly $9 billion, an amount unseen since 2014, when Alibaba made its Wall Street debut. But President Donald Trump has criticized Beijing's "Made in China 2025" industrial modernization initiative, a development that may impact future American listings by Chinese tech companies.

Some in the investment community, however, doubt the wisdom of Tencent and other cash-rich Chinese internet conglomerates' financial muscle-flexing.

"I am a little skeptical about Tencent as an investor, as they are becoming more like a buyer of whoever they feel might become a competitor. They just seem to throw money around, and hopefully they join the family later on," a Hong Kong-based investment director for a prominent mainland fund told the Nikkei Asian Review on condition of anonymity.

That is not only true of Tencent. "If you look at recent acquisitions, by not only Tencent but Alibaba, JD.com or Baidu, they are all like that -- buying potential competitors before they mature and become real competition," the Hong Kong-based investment director said.

Nikkei Asian Review chief business news correspondent Kenji Kawase  in Hong Kong contributed to this article.

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