Tencent's China Literature Climbs in Gray Market Before Debut

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China Literature Ltd., the online reading unit being spun out by Tencent Holdings Ltd., climbed in gray market trading after pricing its initial public offering at the top of its marketed range.

Investors bought stock at HK$76 apiece ahead of Wednesday’s official market debut in Hong Kong, according to Tom Leske, a sales trader at Churchill Capital in Singapore. That is 38 percent above the HK$55 price in the IPO which is expected to generate net proceeds of HK$7.17 billion ($919 million).

“The demand for stock in the gray market is extremely high. Those lucky enough to get an allocation have been reluctant to sell in whats expected to be very hot listing tomorrow,” Leske said. “

Various book titles are displayed on the QQ Reading app.

Photographer: Anthony Kwan/Bloomberg

The Tencent unit sells electronic books in a model similar to Amazon.com Inc.’s Kindle Store, which offers different titles in China than in the U.S. and elsewhere. China Literature had 9.6 million works and 6.4 million writers as of June 30, according to its prospectus. Customers can pay for an entire book at once, or buy a few chapters at a cheaper price before determining whether to keep reading.

China Literature had a profit of 213.5 million yuan ($32.2 million) in the first half of this year, compared with a 2.4 million yuan loss for the same period in 2016, a prospectus showed.

The company also wants to leverage its content into other forms of entertainment, such as movies, TV series and anime, as Tencent aspires to create a Marvel-like empire. Shenzhen-based Tencent became China’s second-biggest technology company on the strength of its WeChat messaging app, which since has morphed into a portal for shopping, banking, gaming and consuming entertainment.

Retail investors were enthusiastic about the Tencent spinoff, placing orders for more than 600 times the stock initially available to them in the IPO, people with knowledge of the matter said earlier. The portion of the deal reserved for institutional money managers also is oversubscribed by several times, the people said.

Morgan Stanley, Bank of America Corp., Credit Suisse Group AG, China International Capital Corp. and JPMorgan Chase & Co. are joint global coordinators of the offering.

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