Sweden’s MTG AB surged after its portfolio company ESL, the world’s largest esports company, said it is partnering with Tencent Holdings Ltd.-backed streaming platform Huya Inc. to expand in the Chinese market for competitive gaming.

ESL’s majority owner MTG AB has entered into a binding term sheet with Huya, and plans to form a joint venture with the Chinese company. Huya will also buy $30 million worth of shares in the company, in a deal that will see ESL issue new $22 million in new shares and that gives the German company a pre-money enterprise value of $425 million.

Huya, one of China's largest live streaming services, has recently been expanding into gaming. (Picture: Brendan McDermid/Reuters)

Shares in MTG gained as much as 25%, the most on record. They were trading at 93.8 kronor as of 9:35 a.m. in Stockholm, giving the Stockholm-based company a market value of $646 million.

MTG earlier this year spun off its TV business to focus entirely on gaming and esports, the latter of which has grown rapidly in recent years but has yet to turn a profit. Expanding viewership is an important factor in making the business profitable by boosting sponsorship deals, increasing advertising revenue and selling media rights. In the first six months of this year, the business posted a 174 million-krona ($17.7 million) operating loss.

The partnership is a “major positive step” for MTG, Morgan Stanley analyst Julia Matoshchuk said in a note. “The strategic partnership with Huya gives MTG access to the largest and fastest growing esports market, further strengthen’s ESL’s position as the leading and largest esports company globally and increases ESL appeal to western national advertisers.”

The $425-million valuation of ESL speaks to the potential of the tie-up, Matoshchuk said, as MTG’s share price prior to the announcement appeared to value the esports business at about $30m.

The companies plan to host local Chinese esports competitions connected to the global ESL tournament calendar. ESL hosts tournaments and leagues where the top players and teams compete in games such as Counter-Strike: Global Offensive, Dota 2 and Overwatch. The agreement provides the company with a “strong partner” to “pave the way for successful ESL expansion into the thriving Chinese esport and gaming market in due time,” MTG’s Chief Executive Officer Jorgen Madsen Lindemann said in a statement.

Huya had previously been a media partner for ESL, streaming events to a Chinese audience, and the tie-up could enable expansion in the vast Chinese market. Huya is in fierce rivalry with Douyu for the position as the biggest platform for esports streaming in China.