Tencent sells shares of Southeast Asia’s biggest technology company, spooking investors as it trims portfolio for the second time in two weeks

·4-min read

Tencent Holdings reduced its stake in Southeast Asia’s most valuable technology company Sea Limited, spooking investors with its second divestment in as many weeks as it trims its sprawling investment portfolio amid China’s antitrust clampdown.

Shares of China’s largest technology company closed 4.3 per cent lower in Hong Kong on Wednesday, their biggest drop in more than three months, after Tencent sold 14.5 million American depository shares (ADS) of Sea at the low end of a price range. The sale pared Tencent’s stake in Sea to 18.7 per cent from 21.3 per cent, reducing its voting power to below 10 per cent, Tencent said on its website.

The sale raised US$3 billion, which Tencent intends to use for funding “other investments and social initiatives,” according to its statement. “Tencent intends to retain the substantial majority of its equity stake in Sea for the longer term and will continue its existing business relationships with the company.”

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Tencent sold its Sea shares through a block trade at US$208 per share, according to a term sheet seen by South China Morning Post. Sea’s shares fell 11.4 per cent overnight to a 12-month low of US$197.84 in New York, their biggest single-day percentage decline since March 12, 2020.

A screen shot of “Free Fire MAX,” a game published by Sea Limited’s Garena unit. Photo: Handout
A screen shot of “Free Fire MAX,” a game published by Sea Limited’s Garena unit. Photo: Handout

Tencent was an early investor in Sea through a tie-up with its forebear Garena, which publishes Tencent’s mobile and PC games around Southeast Asia. Garena was renamed Sea in 2017 ahead of its initial public offering in New York, but the brand remains within the Sea portfolio, which has since grown into a sprawling consumer internet firm with an e-commerce business called Shopee, and digital payment and financial services called SeaMoney with a combined capitalisation of US$110 billion.

Tencent’s divestment in Sea followed its surprise sale of its stake in China’s second-largest e-commerce platform JD.com on December 23. That partial divestment, estimated at HK$127.7 billion (US$16.4 billion), was done through a distribution of special dividends to Tencent’s shareholders, slashing its JD.com stake to 2.3 per cent from 17 per cent.

The divestment in JD.com was due to the fact that Chinese e-commerce giant has reached a stage whereby it is able to self-finance its own future growth, and that Tencent’s investment strategy is to support companies that are still in development stage, according to its stock exchange filing.

Tencent has come under pressure to be neutral as an infrastructure service provider amid Beijing’s increasing clamp down on tech platforms’ monopolistic business behaviour, analysts have said. The government has been pushing for interconnectivity, forcing Tencent to open its ecosystem to JD.com rivals like Alibaba Group Holding, which owns this newspaper.

Forrest Li, chairman and group chief executive officer of Sea Limited, in Singapore on July 8, 2020. Photo: Bloomberg
Forrest Li, chairman and group chief executive officer of Sea Limited, in Singapore on July 8, 2020. Photo: Bloomberg

The change in its voting rights in Sea is still pending Sea’s shareholders’ approval at a general meeting slated for February 14. Forrest Li, founder, chairman and chief executive of Sea, today holds about 54 per cent of the voting power. This will increase to 57 per cent upon shareholders’ approval of Tencent’s conversion of its shares to “class A” shares that would pare back its voting power to below 10 per cent.

“The share sale unlocks a portion of the value of Tencent’s investment in Sea, which has seen significant growth and expansion in its global business operations,” the Chinese company said.

Tencent will be subject to a six-month lock-up period that restricts further sale of Sea shares. Bookrunners of the deal include Goldman Sachs, Bank of America and Morgan Stanley.

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