China's Tencent Floating E-Publishing Unit on Hong Kong Stock Market

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Tencent Holding CEO Ma Huateng

The IPO of Tencent's China Literature Ltd. is expected to raise up to $800 million.

Chinese internet giant Tencent has filed for an initial public offering of its publishing unit, China Literature Ltd., in a move expected to raise as much as $800 million.

China Literature filed for an IPO in Hong Kong late Monday, Reuters reported. Bank of America Merrill Lynch, Credit Suisse and Morgan Stanley are sponsors of the offering, the company said.

Tencent did not disclose details of the structure of the deal, but the company, which currently holds a 62 percent stake in China Literature, has said it plans to retain at least a 50 percent stake in the publishing unit following the float. China Literature is China's largest online publishing and e-book company. It boasts some 8.4 million works from 5.3 million writers on its Kindle Store-style platform.

Private equity firm Carlyle Group LP owns 12.2 percent of China Literature, while Trustbridge Partners, a private equity firm founded by Shujun Li, the former CFO of Shanda Interactive, holds 6 percent.

The firm saw revenue jump to 2.6 billion yuan ($377 million) last year, a 59 percent increase. China Literature posted a net profit 30.4 million yuan ($4.4 million), its first net profit since the company began disclosing financial data in 2014. That compares to a 354.2 million yuan loss a year earlier.

Tencent, whose interests spread across e-commerce, online gaming and film production, first got into the e-book business in 2004. In 2014, it acquired Chinese online literary platform Cloudary Corp for $729.6 million. Cloudary had filed for an IPO on the New York Stock Exchange in 2011 and 2012, but withdrew its application in 2013, citing “market conditions.”

Tencent saw it own stock on the Hong Kong exchange plunge on Tuesday after Communist Party newspaper People's Daily, in its online edition, criticized the company for its popular online game King of Glory, which the paper called "poison" for young people. The remarks led to an immediate drop in Tencent shares, which fell 4.1 percent, representing a decline in value of HK$109 billion ($14 billion).

King of Glory, a multiplayer online battle game, has more than 80 million users, according to People's Daily. The editorial attacked the game for spreading negative messages and "ruining the lives" of young players.

The Hollywood Reporter has a multiyear content deal with Tencent.