Tencent to Give $16.4-Billion JD.com Stake to Shareholders as Dividend

Chinese gaming and social media company Tencent will hand a $16.4 billion JD.com stake as a dividend to its shareholders, weakening its ties to the e-commerce firm, and raising questions about its plans for other holdings.

Tencent said on Thursday it will distribute HKD 127.69 billion worth of its JD.com stake to shareholders, slashing its holding in China's second-biggest e-commerce company to 2.3 percent from around 17 percent now and losing its spot as JD.com's biggest shareholder to Walmart.

The divestment move comes as Beijing leads a broad regulatory crackdown on technology firms, taking aim at their overseas growth ambitions and concentration of market power in China.

Tencent, which first invested in JD.com in 2014, said it was the right time to transfer its stake given the e-commerce firm has reached a stage where it can self-finance its growth.

"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," said Mio Kato, a LightStream Research analyst who publishes on Smartkarma.

"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 in our view," he said.

JD.com shares plunged 11.2 percent in early trade in Hong Kong on Thursday, the biggest daily percentage decline since its debut 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, though Tencent Executive Director and President Martin Lau will step down from JD.com's board immediately.

Eligible Tencent shareholders will be entitled to one share of JD.com for every 21 shares they hold.

Tencent, the owner of WeChat, chose to distribute the shares as a dividend rather than sell them on the market in an attempt to avoid a steep fall in JD.com's share price as well as a high tax bill, a person with knowledge of the matter told Reuters.

"For JD, the impact is definitely negative," said Kenny Ng, an analyst at Everbright Sun Hung Kai.

"Although Tencent's reduction of JD's holdings may not have much impact on JD's actual business, when the shares are transferred from Tencent to Tencent's shareholders, the chances of Tencent's shareholders selling JD's shares as dividends will increase."

Investors and analysts said the distribution of the JD.com stake raised the prospect that Tencent's investments in e-commerce company Pinduoduo and food delivery giant Meituan could also be divested amid regulatory pressure to scale down.

Tencent has no plans to exit those investments because they are not as well-developed, the person with knowledge of the matter said.

Payments processor Alipay is part of Tencent rival Alibaba Group. © Reuters

December 23, 2021