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Wednesday, October 25, 2017, 22:15
China Literature aims to raise US$1b in HK IPO
By Luo Weiteng
Wednesday, October 25, 2017, 22:15 By Luo Weiteng

China Literature Ltd, the country’s largest online publisher and e-book provider, is planning to raise up to US$1 billion via an initial public offering in Hong Kong.

The amount to be raised is higher than the previously reported range of US$600 million to US$800 million, as the highly sought-after deal, among a spate of high-profile technology listings, is expected to trigger another fresh bout of buying craze in Hong Kong.

The Tencent-backed company will sell 151.37 million shares at HK$48 to HK$55 apiece, with minimum investment HK$11,000 for a board lot of 200 shares, according to a prospectus filed with the Hong Kong stock exchange.

The offer, scheduled to open its retail book on Thursday and close next Tuesday, puts China Literature on course to become the IPO with the highest minimum investment in the city so far this year.

The offer, scheduled to open its retail book on Thursday and close next Tuesday, puts China Literature on course to become the IPO with the highest minimum investment in the city so far this year

The company is looking to price the offering next Tuesday and make its market debut on November 8th. A pricing at the top of the range would give it a market valuation of over US$6 billion. 

Tencent Holdings Ltd controls China Literature with a 65.38 percent stake. On completion of the offering, Tencent’s holdings are expected to remain no less than 50 percent.

As the tech giant’s publishing arm, China Literature, whose business resembles Amazon’s Kindle Store, boasts 9.6 million literary works from 6.4 million writers.

The company managed to turn its business around over the first six months of the year, posting a net profit of 302.8 million yuan (US$45.6 million) from a net loss of 44.8 million yuan a year earlier. 

It derives its revenue mainly from charging readers to access literature works on the platform, which accounts for a staggering 85 percent of the total sales that surges by 92.5 percent to 1.9 billion yuan for the first half of the year. 

Liang Xiaodong, co-chief executive officer of China Literature, told a press conference in Hong Kong on Wednesday that the firm is looking to gain momentum from a booming online literature market in the world's second-largest economy, which has registered a compound annual growth rate of 45 percent over the past four years and is projected to grow at an annual rate of 31 percent by 2020.

Some 30 percent of the net proceeds from the IPO will be used to expand the “online reading” business, including growing its network of “promising [contract] writers” and expanding the genres of e-books.

Another 30 percent will be used to underpin the firm’s efforts to turn stories into blockbuster films, video games and merchandise, the so-called big trend of “intellectual property operations” that could become a promising money-spinner in the near future. 

Over the past three years, the contribution of intellectual property operations to the total revenue hovers at around 10 percent. For the first half of the year, such figure remains low at 8 percent.

"We are still climbing up the learning curve in terms of intellectual property operations," said Liang. "Looking ahead, online reading will continue to be our core business and predominant revenue contributor. But intellectual property operations have what it takes to become another bright spot."

Wu Wenhui, co-chief executive officer, said the company is betting big on the well-established capital market in Hong Kong, known for its full-fledged system and global exposure, to polish its brand and reach out to international investors. 

The flotation will go without cornerstone investor. But Wu said cornerstone investor is not a prerequisite for a listing. The company will remain its pace to look for long-term investors after the offering. 

Bank of America Merrill Lynch, Credit Suisse and Morgan Stanley were hired as sponsors for the IPO, with China International Capital Corp Ltd (CICC) and JPMorgan also working as joint global coordinators.

sophia@chinadailyhk.com


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