Chinese gaming and social media company Tencent will pay shareholders a stake of $ 16.4 billion (about Rs.123.570 billion) in dividends, which weakens its ties with the e-commerce company and matters to his plans for others raises stocks.
Tencent announced Thursday that it will distribute its stake in JD.com valued at HKD 127.69 billion (approximately Rs.123.370 billion) to shareholders and its stake in China’s second largest e-commerce company as of now will reduce roughly 17 percent to 2.3 percent and will lose its place as JD.com’s largest shareholder in Walmart.
The divestment move comes as Beijing leads broad regulatory crackdown on tech companies targeting their overseas growth ambitions and concentration of market power in China.
Tencent, which first invested in JD.com in 2014, said the time was right to transfer its stake as the e-commerce company has reached a stage where it can self-fund its growth.
“This appears to be a continuation of the concept of destroying the walled gardens and increasing competition between the tech giants by weakening partnerships, exclusivity and other agreements that weaken competitive pressures,” said Mio Kato, an analyst with LightStream Research. who published on Smartkarma.
“This could have an impact on things like the payments market, where we believe Tencent’s relationship with Pinduoduo and JD helped maintain some competitiveness with Alipay,” he said.
JD.com stock plunged 11.2 percent in early trading on Thursday in Hong Kong, the largest daily percentage drop since it debuted in the city in June 2020, while Tencent shares rose 5.7 percent.
The companies said they would continue to have a business relationship, including an ongoing strategic partnership agreement, although Tencent Executive Director and President Martin Lau will be stepping down from JD.com’s board of directors immediately.
Eligible Tencent shareholders are entitled to one share of JD.com for every 21 shares they hold.
Tencent, the owner of WeChat, chose to distribute the shares as dividends instead of selling them in the market to avoid a sharp drop in JD.com’s share price as well as a heavy tax burden, according to Reuters.
“The impact is definitely negative for JD,” said Kenny Ng, an analyst at Everbright Sun Hung Kai.
“Although Tencent’s reduction in JD’s holdings may not have a major impact on JD’s actual business, if Tencent’s shares are transferred to Tencent’s shareholders, the chances that Tencent’s shareholders will sell JD’s shares as dividends will rise.”
Investors and analysts said the split of the JD.com stake raises the prospect that Tencent’s investments in e-commerce company Pinduoduo and food delivery giant Meituan could also be sold amid regulatory pressures to cut them.
Tencent has no plans to end these investments as they are not as well developed, the expert said.
Payment service provider Alipay is part of Tencent rival Alibaba Group.
© Thomson Reuters 2020