Tencent Music buys SM Entertainment stake in K-pop bet

A Tencent Holdings subsidiary is snapping up a nearly 10 per cent stake in SM Entertainment valued at about US$180 million, marking a rare Chinese investment into a South Korean company in recent years.

Tencent Music Entertainment Group, which is controlled by Tencent, will buy the stake from BTS agency Hybe, which is selling its remaining 2.2 million shares in SM Entertainment at 110,000 won each, a 15.3 per cent discount to Tuesday’s (May 27) close, according to a regulatory filing.

The move comes as China is widely expected to lift its nearly decade-old unofficial ban on K-pop performances in mainland China. That potentially opens South Korean companies such as SM Entertainment to resume music distribution through the relationship with Tencent.

Before the restrictions, China was among the fast-growing markets for K-pop.

China imposed the so-called “K-wave ban” in 2016 in retaliation for South Korea allowing the US military to deploy missile defence system called Thaad, or Terminal High-Altitude Area Defense, on its soil.

Tencent, China’s gaming and social media leader, was not available for an immediate comment.

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For Tencent, the deal would mark its first major investment in South Korea’s music industry in years. It owns a 4.3 per cent stake in YG Entertainment and a 5.95 per cent holding in Kakao, South Korea’s biggest Internet company which is also the largest shareholder of SM Entertainment.

The selldown will bring an end to the bitter battle for the control of SM Entertainment. Hybe and Kakao sought to buy SM Entertainment in 2023, in what would have been one of the country’s biggest media sector deals. But Hybe dropped its pursuit of SM after the bidding war pushed up the SM stock price, making it too expensive.

The deal also resulted in Kakao founder Brian Kim getting caught up in the regulatory crosshairs, over charges that he allegedly tried to manipulate the SM Entertainment shares. Kim has repeatedly denied any wrongdoing.

South Korean entertainment stocks have been among the biggest gainers in the Korean equity market this year, driven by expectations they will be shielded from tariff wars. The rally is also underpinned by expectations of China lifting its K-pop ban.

SM Entertainment shares have rallied 72 per cent so far this year while YG Entertainment jumped 77 per cent.

Hybe said in a statement it divested non-core assets and the proceeds will be used to fund future growth. BLOOMBERG