Chinese internet giant Tencent is planning to distribute HK$127.7 billion($16.3 billion) worth of JD.com shares as an interim dividend to its shareholders, as the company chaired by billionaire Pony Ma starts to step back from some of its most successful investments.
In a rare move, Hong Kong-listed Tencent will hand out 457.3 million of e-commerce platform JD.com’s Class A shares as dividend payouts, it announced in a December 23 filing. They represent about 86.4% of Tencent’s shareholding in JD.com, and 14.7% of the latter’s total issued shares. Based on JD.com’s Wednesday closing price of HK$279.2 apiece, the dividend distribution is worth as much as HK$127.7 billion, according to the filing.
Tencent said the divestment is in line with its investment strategy. The gaming and social media giant has backed numerous startups in China, often investing during their early days and exiting when “investees become consistently capable of self-financing their future initiatives,” it says in the filing.
Shawn Yang, a Shenzhen-based managing director at research firm Blue Lotus Capital Advisors, says the divestment may be just the beginning. Tencent could also gradually exit from its other investments such as those in discount shopping site Pinduoduo and food-delivery giant Meituan, as China seeks to rein in the market influence of its biggest internet titans and breaking up their enclosed ecosystems to allow fairer competition.
“If Tencent continues to hold a lot of shares in these companies, then it raises the question of whether it will keep supporting them by directing traffic to their respective services,” says Yang.
Continuing that practice could be against the government’s wishes. In addition to imposing new anti-monopoly and data protection laws on the country’s once free-wheeling internet sector, regulators also want them to open up services to rivals. Tencent, for example, had long excluded links to shopping sites run by e-commerce giant Alibaba from its near-ubiquitous WeChat messaging platform, which has more than 1 billion users in China. But JD.com, which it first invested in 2014 and gradually built up a 17% ownership before the divestment, can sell products such as groceries and electronic appliances through WeChat’s shopping channel.
Exiting through the dividend payout also allows Tencent to reduce the selling pressure on JD.com’s stock, which is down almost 40% in Hong Kong since peaking in February, according to Ke Yan, head of research at Singapore-based DZT Research. This is because its shareholders, who will get one JD.com ordinary share for every 21 Tencent shares held, can choose to maintain them or not. Tencent’s ownership will be reduced to 2.3%, and its billionaire President Martin Lau will also exit from JD.com’s board of directors, according to a separate statement from the e-commerce company.
But both said they won’t sever ties altogether. JD.com’s billionaire founder Richard Liu says he looks forward to “continuing the close and trusted strategic partnership” with Tencent, a tone that is echoed by Lau.
“I also look forward to the continued strong partnership between JD.com and Tencent going forward, and the value creation that both companies will generate for the society,” he is quoted as saying in the statement.