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Baidu's iQiyi sets terms for US IPO

Chinese video streaming platform iQiyi Inc. has set terms for its planned U.S. IPO.

The Baidu Inc. unit is seeking to offer 125 million American depositary shares, representing 875 million class A ordinary shares, in the Nasdaq Global Market, according to a March 16 filing with the U.S. Securities and Exchange Commission. IQiyi has granted underwriters the option to purchase additional 18,750,000 ADSs to cover overallotments.

One ADS represents 7 of the company's class A ordinary shares, priced at $17 to $19 per share.

The company expects to receive approximately $2.18 billion from the offering based on an assumed initial offering price of $18 per ADS, which is the midpoint of the price range provided.

IQiyi also said it intends to allocate approximately $1.09 billion, or 50% of net proceeds, to expand and enhance its content offering; about $218 million, or 10%, to strengthen its technologies; and the remaining 40% for working capital and other general corporate purposes. The company added that it may utilize a portion of the net proceeds on acquiring businesses, products, services or technologies.

According to Kagan, a media research group within S&P Global Market Intelligence, iQiyi's U.S. IPO is a move by the company to maintain its Chinese market lead, noting the growing competition for subs and the need to expand content spending.

Baidu's OTT video subsidiary has historically led both Tencent Holdings Ltd.'s Tencent Video and Alibaba Group Holding Ltd.'s Youku Tudou in paid subscribers, with Kagan's last State of Chinese online video: Subscription profile indicated that iQiyi ending 2016 with 27.5 million Chinese paid subscribers compared to 19.2 million for Tencent Video and 14.2 million for Youku Tudou.

The IPO pricing comes shortly after Chinese media reports that China plans to grant faster approvals to tech companies seeking domestic IPOs, which will purportedly see local tech companies obtaining regulatory approvals within two to three months. IQiyi's parent company Baidu is reportedly among those that declared their support for the plan at the sidelines of the annual meeting of the country's parliament.

Meanwhile, Baidu has proposed to sell senior notes, having filed a preliminary prospectus supplement with the U.S. SEC. The company will use the proceeds to "repay existing indebtedness and for general corporate purposes." The joint book runners of the offering are Goldman Sachs (Asia) LLC, J.P. Morgan Securities LLC and BofA Merrill Lynch.

In February, Baidu posted revenues surpassing its fourth-quarter 2017 guidance.