After Government Crackdowns, NetEase Music Streaming Service Shelves Its $1 Billion Chinese IPO

NetEase shelves Chinese IPO

Photo Credit: NetEase

NetEase has shelved plans for a $1 billion IPO over China’s Big Tech crackdown.

NetEase sought to offer a Hong Kong IPO of its music streaming service, Cloud Village. But because of volatile conditions surrounding China’s relationship with tech companies, the company is holding back. Two representatives who spoke on the condition of anonymity confirmed the information to Reuters. So far, NetEase has not released an official response.

The IPO was approved by the Hong Kong Stock Exchange’s listing committee. Preliminary meetings were held with potential investors last week, but the Chinese IPO was shelved due to regulatory crackdown.

NetEase’s Hong Kong shares lost 14% last week on news China’s gaming sector could face a stiff crackdown. The company announced back in May that it would spin off Cloud Village – the operator of its NetEase Cloud music streaming service.

NetEase would hold at least 50% of the voting rights of Cloud Village, with the company remaining a NetEase subsidiary after the IPO. NetEase currently owns 62.46% of Cloud Village’s total issued share capital.

“Cloud Village’s business is expected to undergo relatively rapid business expansion and would be appealing to an investor base that focuses on high growth opportunities in the music streaming business, different from the relatively more diverse business model of NetEase’s operations,” the company wrote in its Hong Kong stock exchange filling back in May.

Details about the proposed spin-off have not been finalized nor made public. So far, the IPO would include the Hong Kong retail offering and one for international investors. But shelving those plans means they may be kaput for good. It’s not clear if Cloud Village will resume the share sale at a later date, but the music streaming service is yet to post a profit.

China is cracking down on the Big Tech sector for what it calls anti-monopoly practices. In July, antitrust regulators ordered Tencent to give up its exclusive music licensing rights.

They also slapped the company with a stiff fine for anti-competitive behavior for acquiring China Music in 2016. That acquisition gave Tencent more than 80% of exclusive music library resources, giving it a significant advantage over competitors.

Tencent was also required to end requirements for copyright holders to grant the company more favorable treatment than competitors. Tencent says it will comply with all regulatory requirements, which require the company to report to a regulatory body every year for three years.