Business

Tencent provides shareholders with $ 16.4 billion in JD.com shares




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

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  • The movement comes when Beijing strikes at the technology companies
  • JD.com stock plunges as much as 11.2%, Tencent up 4%
  • Tencent has no plans to sell shares in other companies

BEIJING / HONG KONG, DECEMBER 23 (Reuters) – Chinese gaming and social media company Tencent (0700.HP) will pay a dividend of $ 16.4 billion by distributing most of its JD.com (9618.HK) ) ownership interest, which weakens the ties to the e-commerce company and raises questions about the plans for other holdings.

The move comes as Beijing leads a broad regulatory intervention against technology companies, targeting their overseas growth ambitions and domestic concentration of market power.

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

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The owner of WeChat, who first invested in JD.com in 2014, said it was the right time for the sale, given that the e-commerce company had reached a stage where it could self-finance the growth.

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

The company is one of a handful of technology giants that dominate China’s internet space and have historically prevented rivals’ links and services from being shared on their platforms.

“This seems to be a continuation of the concept of tearing down fenced gardens and increasing competition among technology giants by weakening partnerships, exclusivity and other schemes that weaken competitive pressure,” said Mio Kato, a LightStream Research analyst at Smartkarma. . the transfer of the JD.com bet.

“It 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% in early Hong Kong trading on Thursday, the largest daily percentage decline since its debut in the city in June 2020, before partially reaching a 7% decline by 0450 GMT. Shares of Tencent, Asia’s most valuable listed company, rose 4%.

Shares in Tencent and JD December 23

The companies said they will continue to have a business relationship, including an ongoing strategic partnership agreement, although Tencent’s CEO and president Martin Lau will resign from JD.com’s board immediately.

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

PORTFOLIO DEPENDENCES?

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

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

“There may be other disposals on the way as Tencent listens to the antitrust call while shareholders ask to own these interests in minority stakes themselves,” he said.

A person with knowledge of the case told Reuters that Tencent has no plans to abandon its other investments. When asked about Pinduoduo and Meituan, the person said that they are not as well developed as JD.com.

Tencent chose to distribute the shares as dividends instead of selling them on the market in an attempt to avoid a sharp fall in JD.com’s share price as well as a high tax bill, the person added.

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

“While Tencent’s reduction in JD’s holdings may not have a significant impact on JD’s actual business, the chances of Tencent’s shareholders selling JD’s shares as dividends will increase when the shares are transferred from Tencent to Tencent’s shareholders,” he said.

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

Walmart owns a 9.3% stake in JD.com, according to the Chinese company. The payment processor Alipay is part of the Tencent competitor 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; Author by Jamie Freed; Editing Subhranshu Sahu and Muralikumar Anantharaman

Our standards: Thomson Reuters Trust Principles.



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