Tencent hands shareholders $ 16.4 billion windfall in JD.com stake

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A Tencent logo is seen in Beijing, China on September 4, 2020. REUTERS / Tingshu Wang

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  • Move comes as Beijing attacks tech companies
  • JD.com shares plunge 11.2%, Tencent up 4%
  • Tencent does not intend to sell stakes in other source companies

BEIJING / HONG KONG, Dec.23 (Reuters) – Chinese games and social media company Tencent (0700.HK) to pay dividend of $ 16.4 billion by distributing most of its stake in JD.com (9618 .HK), weakening its ties with the e-commerce company and raising questions about its plans for other stakes.

The move comes as Beijing carries out a sweeping regulatory crackdown on tech companies, targeting their growth ambitions abroad and the national concentration of market power.

Tencent on Thursday said it will transfer HK $ 127.69 billion ($ 16.37 billion) from its stake in JD.com to its shareholders, reducing its stake in China’s second-largest e-commerce company at 2.3% from around 17% now and losing his place as JD’s largest shareholder of .com to Walmart (WMT.N).

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The owner of WeChat, who first invested in JD.com in 2014, said the time is right for the divestiture, as the ecommerce company has reached a stage where it can self-finance its growth.

Chinese regulators this year blocked Tencent’s $ 5.3 billion merger of the country’s two major video game streaming sites, ordered it to end exclusive music copyright deals and found that WeChat illegally transferred user data.

The company is one of a handful of tech giants that dominate the Chinese internet space and have historically prevented rivals’ links and services from sharing on their platforms.

“It appears to be a continuation of the concept of breaking down walled gardens and increasing competition between tech giants by weakening partnerships, exclusivity and other agreements that weaken competitive pressures,” said Mio Kato. , a LightStream Research analyst who publishes on Smartkarma. the transfer of JD.com participation.

“This could have implications for things like the payments market where Tencent’s relationship with Pinduoduo and JD has helped it maintain some competitiveness with Alipay,” he said.

JD.com shares plunged 11.2% at some point in Hong Kong trading on Thursday, the largest daily percentage drop since its debut in the city in June 2020, before closing with a decline of 7. 0%. Shares of Tencent, Asia’s most valuable listed company, rose 4.2%.

Tencent and JD shares on December 23

The companies said they would continue to have business relationships, including an ongoing strategic partnership agreement, although Tencent chief executive and chairman Martin Lau immediately steps down from JD.com’s board. .

Eligible Tencent shareholders will be entitled to one JD.com share for every 21 shares they hold.

PORTFOLIO DESENSIONS?

JD.com’s stake is part of Tencent’s portfolio of listed investments valued at $ 185 billion as of September 30, including stakes in e-commerce company Pinduoduo (PDD.O), food delivery company Meituan (3690.HK), Kuaishou video platform (1024.HK), automaker Tesla (TSLA.O), and streaming service Spotify (SPOT.N).

Alex Au, managing director of Hong Kong-based hedge fund manager Alphalex Capital Management, said the sale of JD.com made both business and political sense.

“There could be other divestments underway as Tencent heeds the antitrust appeal as shareholders demand to own these interests in minority stakes themselves,” he said.

A person familiar with the matter told Reuters that Tencent has no plans to pull out of its other investments. Asked about Pinduoduo and Meituan, the person replied that they are not as well developed as JD.com.

The Chinese internet giant has also invested in foreign companies such as Tesla (TSLA.O), Netamble, Snapchat, Spotify (SPOT.N) and Sea (SE.N). “Going overseas is one of Tencent’s most important strategies going forward,” a CITIC Securities research note said Thursday. “The possibility of selling high-quality Internet technologies and assets abroad is low. “

Tencent chose to distribute the JD shares as a dividend rather than selling them in the market in order to avoid a sharp drop in the JD.com share price and a high tax bill, the person added.

Kenny Ng, analyst at Everbright Sun Hung Kai, said the decision was “definitely negative” for JD.com.

“Although Tencent’s reduction in JD’s holdings may not have much impact on JD’s actual business, when the shares are transferred from Tencent to Tencent shareholders, the chances that Tencent shareholders will sell JD’s shares in the form of dividends will increase, “he said.

Tech investor Prosus (PRX.AS), which is Tencent’s largest shareholder with a 29% stake and is controlled by Naspers of South Africa, will receive the bulk of the shares in JD.com.

Walmart has a 9.3% stake in JD.com, according to the Chinese company. The Alipay payment processor is part of Tencent’s rival, the Alibaba Group.

($ 1 = 7.7996 Hong Kong dollars)

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Reporting by Sophie Yu in Beijing and Scott Murdoch in Hong Kong; Additional reporting by Xie Yu, Selena Li, Donny Kwok and Eduardo Baptista in Hong Kong and Nikhil Kurian Nainan in Bengaluru; Writing by Jamie Freed; Editing by Subhranshu Sahu and Muralikumar Anantharaman

Our Standards: Thomson Reuters Trust Principles.


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