Tencent shareholders raised $ 16.4 billion in the form of JD.com shares

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

Beijing / Hong Kong, December 23 (Reuters) – Chinese sports and social media company Tencent (0700.HK) Most of it will pay $ 16.4 billion in dividends through the distribution of JD.com (9618.HK) The stock weakens its relationship with the e-commerce company and raises questions about its plans for other stocks.

The move is aimed at targeting their foreign growth ambitions and domestic concentration of market power, as it leads to a broader regulatory crackdown on Beijing technology companies.

Tencent on Thursday said it would sell HK $ 127.69 billion ($ 16.37 billion) worth of shares in its JD.com shares to shareholders, reducing its stake in China’s second largest e-commerce company from 17% to 2.3% now. Largest partner in Walmart (WMT.N).

The owner of WeChat, which first invested in JD.com in 2014, said that now that e-commerce has reached the stage of self-funding its growth, it is time for a delisting.

Chinese regulators this year Blocked Tencent has proposed to merge the country’s first two video game streaming sites for $ 5.3 billion, ordering the termination of exclusive music copyright agreements and finding that WeChat has illegally transferred user data.

The company is one of the few technology giants to dominate China’s Internet space and has historically prevented competitors’ links and services from being shared on their sites.

It seems to be a continuation of the idea of ​​increasing competition between technology companies by tearing down walled gardens by weakening partnerships, exclusivity and other arrangements that weaken competition pressures, ”said Mio Cato, a lightstream research analyst at SmartCarma. JD.com Stock Exchange.

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

Shares of JD.com fell 11.2% at one point in Hong Kong trading on Thursday, the biggest daily percentage decline since its opening in the city in June 2020, ending with a decline of 7.0.%. Shares of Tencent, Asia’s most valuable listed company, rose 4.2%.

The companies said they would continue the business relationship, including the current Strategic Partnership Agreement, although Tencent managing director and chairman Martin Low will soon step down from JD.com’s board.

Eligible Tencent shareholders will receive one share of JD.com for every 21 shares they hold.

Portfolio Exceptions?

JD.com Stock is part of Tencent’s portfolio (PDD.O), Food Distribution Company Meituan (3690.HK), Video site Kuaishou (1024.HK), Automaker Tesla (TSLA.O) And the streaming service Spotify (SPOT.N).

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

“While shareholders are being asked to own those interests in minority stocks, there may be other exceptions in their path as Tencent listens to the call of no confidence,” he said.

Someone familiar with the matter said Reuters Tencent had no plans to divest its other investments. When asked about Pinduoduo and Meituan, the person said they were not as well developed as JD.com.

It has also invested in foreign companies such as the Chinese internet company Tesla (TSLA.O), Netamble, Snapchat, Spotify (SPOT.N) And the sea (Late). “Going abroad is one of Tencent’s most important strategies in the future,” CITIC Securities said in a research note on Thursday. “Opportunity to sell high quality technology and internet assets abroad is small.”

Tencent opted to distribute JD shares as dividends instead of selling them on the market in an effort to avoid a sharp fall in JD.com’s share prices and a higher tax bill.

Kenny Ng, a researcher at Everbright Sun Hung Kai, told JD.com that the decision was “definitely negative”.

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

Technology Investor Prosus (PRX.AS)With a 29% stake, Tencent is the largest shareholder and is controlled by South Africa’s Naspers, with JD.com acquiring the largest stake.

According to the Chinese company, Walmart holds 9.3% stake in JD.com. The payment processor is part of the Alibaba Group, a competitor to Alibaba Tencent.

($ 1 = 7.7996 Hong Kong dollars)

Report by Sophie You in Beijing and Scott Murdoch in Hong Kong; Additional report by Xie Yu, Selena Li, Donny Kwok and Eduardo Baptista in Hong Kong and Nikhil Kurian Ninen in Bangalore; Written by Jamie Fried; Editing by Supranshu Sahu and Muralikumar Anandaraman

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