After a horrendous year, Tencent shareholders finally have something to celebrate.
The Chinese internet giant said Thursday that it will distribute most of its stake in e-commerce company JD.com—a slice worth more than $15 billion—as a special dividend. That means Tencent will no longer be JD’s largest shareholder, with its stake due to fall to about 2.3% from around 17%. Tencent has more than tripled its money since it invested in JD in 2014, when the latter went public on Nasdaq. The two will maintain their strategic partnership.
Tencent stock rose 4.3% Thursday as shareholders welcomed the early Christmas present. On the other hand, JD’s Hong Kong-listed stock fell 7.7%. Investors need to anticipate a big chunk of the shares hitting the market. Both stocks have lost around 40% since their peaks in early 2021 as Beijing’s regulatory crackdown has swept across the technology sector.
Tencent has been a prolific investor—it had $185 billion in its investment portfolio as of September—but big divestments like this have been rare. The question for investors is whether there will be more. Tencent also owns stakes in other Chinese internet companies such as e-commerce company Pinduoduo and food-delivery firm Meituan.
Tencent said the reason for the sale is that JD has become consistently capable of financing its own initiatives. The e-commerce company has gained market share from leader Alibaba and has managed to report profits in the past couple of years. Companies like Meituan and Pinduoduo aren’t yet consistently profitable, but they have grown so big that it shouldn’t be a problem for them to go it alone.
Selling down its investments in other major internet companies may help Tencent avoid Beijing’s regulatory scrutiny, too. The strategic rationale for keeping the stakes may have weakened as Beijing pressures Tencent and Alibaba to open up their “walled gardens” to one another.
Tencent has reaped huge gains from its investments over the years. There is little not to like in any moves to cash them in.
Write to Jacky Wong at [email protected]
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Appeared in the December 24, 2021, print edition as ‘Tencent Investors Get a Merry Christmas.’