Tencent to Hand Out $16 Billion of JD.com Shares as Dividend

5 months ago 147

(Bloomberg) -- Tencent Holdings Ltd. plans to administer much than $16 cardinal of JD.com Inc. shares arsenic a one-time dividend, representing a near-retreat from the Chinese e-commerce steadfast that is stoking concerns it volition propulsion distant from different marquee investments.

Most Read from Bloomberg

The astonishment determination to divest astir of its involvement successful China’s No. 2 online retailer comes arsenic Beijing punishes the country’s tech giants for monopolistic behavior, including maintaining closed ecosystems that favour definite companies astatine the disbursal of others. Tencent’s handout whitethorn bargain goodwill with the government, which has pushed for the dismantling of barriers and for tech firms to stock the wealth. As portion of the deal, Tencent President Martin Lau volition exit JD.com’s committee effectual Thursday.

Tencent surged arsenic overmuch arsenic 5.8% successful Hong Kong, portion shares of JD.com dropped much than 11%. Still, the sizable JD.com banal merchantability whitethorn beryllium to beryllium a one-off determination for Tencent, which has been struggling to reassure its shareholders aft a turbulent year. A idiosyncratic acquainted with Tencent’s absorption said they person evaluated its portfolio and person nary volition of paring down oregon exiting different investments -- specified arsenic Meituan and Kuaishou Technology -- successful the coming months. Shares of Meituan and Kuaishou pared immoderate of their aboriginal losses.

“The divestment shouldn’t travel arsenic a implicit astonishment and could beryllium work arsenic a absorption to anti-monopoly investigations -- it’s beauteous wide that regulators don’t privation to spot excessively overmuch ‘faction-like’ patterns successful large tech,” said Chen Da, enforcement manager astatine HHSC Assets (HK). “It’s apt that it volition beryllium work arsenic the commencement of breaking up the huddle a bit.”

Tencent’s JD.com Dividend Result of China Crackdown: Street Wrap

Tencent plans to springiness retired 457.3 cardinal Class A shares successful JD.com, representing astir 86.4% of its full involvement and astir 15% of the online retailer’s full issued shares, according to a filing to the Hong Kong banal exchange. At Wednesday’s close, the shares successful the projected organisation were worthy HK$127.7 cardinal ($16.4 billion). Tencent, which controls astir 17% of JD.com, volition clasp astir 2.3% of the e-commerce company’s shares aft the handout, JD.com said successful a abstracted statement.

The peculiar dividend would fertile among the largest shareholder giveaways ever by a Chinese tech company, which person agelong relied connected accelerated maturation and concern to fulfill investors. Tencent’s strategy is to put successful companies during their improvement signifier and to exit the investments arsenic they go susceptible of financing aboriginal initiatives connected their own, the net elephantine said.

“The Board believes that JD.com has present reached specified a status, and the Board truthful considers that it is an due clip to transfer” the bulk of the shares to its investors, the institution said.

The projected dividend comes aft Chinese tech shares person been battered by much than a twelvemonth of aggravated regulatory scrutiny. The crackdown, which has spanned antitrust to after-school education, gaming and online content, has slowed maturation astatine net firms from Tencent to Meituan and fierce rival Alibaba Group Holding Ltd., forcing the companies to put heavy successful caller net drivers.

Xi Jinping’s telephone to execute “common prosperity” and level income inequality has besides prompted the firms and the moguls down them to marque nationalist pledges to philanthropic efforts. Tencent has already announced it’s mounting speech $15.7 cardinal for societal work programs.

Read more: QuickTake connected China’s regulatory crackdown

The 2 firms volition proceed to support their “mutually beneficial concern relationship, including via their ongoing strategical partnership,” Tencent said.

Having Tencent arsenic its large shareholder gave JD.com entree to the net giant’s immense ecosystem, including the ace app WeChat that the bulk of Chinese consumers usage for messaging, paying bills and making purchases. It’s 1 of respective Tencent-backed firms -- including Pinduoduo Inc., ride-sharing elephantine Didi Global Inc. and nutrient transportation elephantine Meituan -- that person travel to predominate their respective spheres, acknowledgment successful portion to the tremendous postulation that WeChat’s billion-plus users generate.

Competitors specified arsenic Alibaba person agelong complained that links to their services person been blocked, though that is dilatory changing nether Beijing’s pledge to thrust retired anticompetitive behaviour successful the net arena. Tencent volition soon let WeChat groups to show links to outer buying sites specified arsenic Alibaba’s Tmall and Taobao, Bloomberg News has reported.

What Bloomberg Intelligence Says:

Tencent’s program to administer the bulk of its holdings successful JD.com to its shareholders arsenic a peculiar dividend whitethorn awesome much divestments down the enactment by Tencent of its China e-commerce investments specified arsenic Kuaishou and Pinduoduo. The determination could beryllium successful effect to China’s anti-monopoly crackdown, which aims to beforehand fairer contention betwixt Tencent affiliates and Alibaba and others, and whitethorn springiness Tencent greater scope to accelerate overseas investments.

-- Matthew Kanterman and Tiffany Tam, analysts

Click present for the research

Other companies specified arsenic Alibaba whitethorn person to retreat their erstwhile investments successful immoderate palmy startup companies, said Gary Ching astatine Guosen Securities (HK).

(Updates with details connected different investments successful 3rd paragraph)

Most Read from Bloomberg Businessweek

©2021 Bloomberg L.P.

Read Entire Article