Chinese regulatory risk casts a shadow over Tencent Music

Tencent Music VIE structure risks - article

In Tencent’s case, it contracts with a company called Guangzhou Kugo which owns 100% of a company called Tencent Music Shenzhen. TMS operates the QQ Music and WeSing platforms, but has not yet applied to obtain the appropriate license for the business, the company said in its filing posted Tuesday on the U.S. Securities and Exchange Commission website. “We cannot assure you that it can successfully obtain these licenses in a timely manner, or at all,” the statement reads.

“A lot of US-listed Chinese companies operate through VIEs. Their reading is that if Beijing did not say it is illegal, then it is legal. However, Chinese regulators do have the ground to go after them,”

The prospectus also revealed the extent to which Tencent Music relies on VIEs to operate its business, and it set out the group’s recent financial performance for the first time. Tencent Music reported a $230 million profit on revenue of $1.3 billion for the six months ended June 30 the filing stated. “The revenues contributed by our VIEs and their subsidiaries constituted substantially all of our revenues in 2016 and 2017 and the first half of 2018,” the company said.