Tencent, the Chinese gaming and social media giant , will distribute the majority of its JD.com stock in order to pay a $16.4 billion dividend. This is expected to weaken its links to the e-commerce firm and raising worries about its ambitions for other holdings.
The decision by the company was made at a time as Beijing has a major regulatory campaign on technology companies, focusing on their international expansion plans and domestic market power consolidation.
Tencent announced on Thursday that it will transfer HK$127.69 billion ($16.37 billion) of its JD.com stock to shareholders, reducing Tencent’s position in China’s second-largest e-commerce company to 2.3 percent from approximately 17 percent today and handing Walmart the title of JD.com’s largest shareholder.
WeChat’s owner, who initially invested in JD.com in 2014, said the divestment was the perfect time because the e-commerce company had reached a point where it could self-finance its growth.
Tencent’s proposed $5.3 billion combination of the nation’s top two videogame streaming platforms was halted by Chinese regulators this year, and the company was compelled to stop exclusive music copyright deals. WeChat was also found to have illegally shared user data.
The company is one of a small group of tech behemoths that control China’s internet landscape and have typically blocked competitors’ links and services from being shared on their platforms.
“This seems to be a continuation of the concept of bringing down the walled gardens and increasing competition among the tech giants by weakening partnerships, exclusivity and other arrangements which weaken competitive pressures,” Mio Kato, a LightStream Research analyst who publishes on Smartkarma said of the JD.com stake transfer.
“It could have implications for things like the payments market where Tencent’s relationships with Pinduoduo and JD have helped it maintain some competitiveness with Alipay,” he said.
In Hong Kong trade on Thursday, JD.com shares fell 11.2 per cent at one point, the largest daily percentage drop since its launch in the city in June 2020, before concluding with a 7.0 per cent loss. Tencent, Asia’s most valuable publicly traded corporation, saw its stock rise 4.2 percent. Although Tencent Executive Director and President Martin Lau will stand down from JD.com’s board of directors immediately, the businesses announced their commercial connection would continue, including an ongoing strategic collaboration agreement.
Tencent stockholders who are eligible will receive one JD.com share for every 21 shares they own.
Tencent’s portfolio of listed investments, which included shares in e-commerce startup Pinduoduo, food delivery provider Meituan, video platform Kuaishou, automaker Tesla, and streaming service Spotify as of Sept. 30, was valued at $185 billion.
The sale of JD.com makes both commercial and political sense, according to Alex Au, managing director of Hong Kong-based hedge firm Alphalex Capital Management.
“There might be other divestments on their way as Tencent heeds the antitrust call while shareholders ask to own those interests in minority stakes themselves,” he said.
Tencent has no intentions to quit its other investments, according to reports citing a source with knowledge of the situation. When questioned if Pinduoduo and Meituan are as well-developed as JD.com, the guy stated that they are not.
Tesla, Netamble, Snapchat, Spotify, and Sea are among the international companies in which the Chinese internet behemoth has invested.
“Going abroad is one of Tencent’s most important strategies in the future,” a CITIC Securities research note said on Thursday. “The possibility of selling overseas high-quality technology and internet assets is small.”
(Adapted from EconomicTimes.com)