Tencent turns from buyer to seller at the center of investment

Chinese internet giant Tencent is moving from years of aggressively building on bets to focusing on divestments as it comes under pressure from investors and Beijing’s recent antipathy toward big tech companies.

As part of an important shift in strategy, the company has set an easy target to get rid of about 100 billion renminbi ($14.5 billion) of its $88 billion listed equity portfolio this year, according to two people familiar with the matter. This may happen depending on market conditions and internal profit goals.

People said partial liquidations at large Chinese companies, such as food delivery service Meituan, were in the pipeline. People said that Meituan was not a top priority for stock sales due to its strong performance, but that reducing its stake could help reduce pressure on Tencent from the antitrust regulator.

The crackdown that began in 2020 has put nearly 100 deals involving Alibaba and Tencent under antitrust scrutiny by Chinese regulators, reversing Beijing’s laissez-faire approach to the country’s vast internet sector.

A third person with direct knowledge of the matter said investors have also pressured the company to part with underperforming assets, as the non-spreading coronavirus policies and the real estate crisis in China hit the economy.

Tencent reported its first decline in quarterly revenue in August, driven by weak advertising and gaming sales, marking a departure from the days of double-digit growth in the internet business that underpinned the company’s robust investment strategy.

People said its new approach was not driven by any pressing need for cash, and the proceeds from the sale could be distributed in a number of ways, including special dividends for shareholders, share buybacks and bonuses to employees. Two employees, who did not want to be named, said they began receiving dividends this year in the form of JD.com shares.

Two people said the 2022 proceeds will contribute to two payments of funds planned by Tencent that will be based on themes espoused by Beijing, including sustainable social values ​​and shared prosperity. Tencent last year promised to raise 100 billion renminbi to support rural recovery and help boost profits for low-income groups, in line with Beijing’s call for more corporate social responsibility.

Tencent replied, “We have made it clear time and again that our 100 billion RMB commitment to our Sustainable Development Initiative is a multi-year initiative separate from our investment decisions. There is no timeline for contributions to this fund, which will be made over time, and will not be critical to our investment decisions.”

While Tencent has already started its divestment drive, one person said the investment team is still deliberating on which stakes in the non-core business can be reduced and at what price target. The Shenzhen-based group owns more than 10 percent of six large listed tech companies in China and is the largest investor in Meituan, short video sharing app Kuaishou and popular Q&A site Zhihu.

In January, it shed more than $3 billion of shares in Singaporean internet conglomerate Sea. Last year, Tencent awarded stakes worth $16.4 billion in e-commerce company JD.com to shareholders as dividends in a surprise move that some saw as the beginning of a strategy pivot.

Tencent added, “We don’t have any target amounts for divestments. We have always invested with the goal of delivering strong returns for our company and our shareholders, not on any arbitrary schedule or target. Nor have we received any external pressures with respect to our investment portfolio. In fact, our most recent operations have been Divestments, JD.com and Sea, are over-performing and have generated multiple complications on our initial investment. We will continue to make decisions independently and in the long-term interest of our shareholders.”

Despite the shift in strategy, Tencent was expected to continue investing overseas and in areas of strategic growth, including enterprise software, video services and the game industry, although more selective than before, said Fitch Ratings analyst Kelvin Hu and Jia. Wayne in a report in May.

Reporting by Sun Yu in Beijing

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