Chinese social media and gaming giant Tencent Holdings will significantly offload its stake in JD.com, which will be distributed to Tencent shareholders as a one- time dividend.
Tencent plans to reduce 457.3 million Class A shares for the amount of HKD127.7 billion, which is equivalent to 86.4% of its total stake or nearly 15% of JD’s total issued shares, according to a Hong Kong stock exchange statement filed by Tencent on Tuesday.
Tencent, which is previously the biggest shareholder in JD.com, will hold roughly 2.3% of JD’s share after the disinvestment. Tencent President Martin Lau will exit JD.com’s board effective Thursday as a result.
At the time of publication, shares of JD.com dropped as much as 10% on Tuesday morning when the market opened in Hong Kong, while other Tencent investees Meituan, Bilibili Inc Kuaishou Technology also declined at least 3% due to concerns that Tencent will offload its stakes in the near future, Tencent’s stock jumped more than 3%.
Explaining the decision making behind the share’s transfers, Tencent said that the board believe it is the right time to exit investments and share gains with investors as JD has reached a stage that it can self-finance its own growth in the future.
“The core of Tencent’s investment strategy has always been “making long-term investment” on high-growth enterprises and exit the investment when they are capable of self-financing their future development. Currently, we don’t have a plan to further reduce our holdings in JD,” Tencent said, adding that the strategic business relationship between the two parties will remain unchanged.
The strategic investment gave Tencent access to the JD’s huge e-commerce ecosystem, including JD.com and JD logistics that remain capabilities to compete with Alibaba in e-commerce. In return, JD can leverage Tencent’s vast social network ecosystem to gain access of the large user base and promote products of its online merchants on Tencent’s super message app WeChat.
Apart from JD, Tencent’s investment portfolio also include e-commerce platform Pinduoduo Inc., ride-sharing giant Didi Global Inc. and food delivery giant Meituan, which has ensured Tencent’s powers in respective sectors.
The fast expansion of Tencent’s empire slowed this year after Beijing launched campaign to punish the country’s tech giants for monopolistic behavior, including unclear acquisitions and built-up closed ecosystems that squeeze out competitors.
Tencent is at the center of antitrust investigation that the State Administration for Market Regulation (SAMR) fined big tech firms including Tencent, Alibaba for failing to report past merger and acquisition deal.
In July, SAMR blocked the merger of Huya and Douyu International Holding, China’s two biggest video game live-streaming platform that Tencent owns controlling stakes in.
SAMR has also forced Tencent Music Entertainment (TME) to give up exclusive streaming rights signed with music labels including Song Musci, Universal Music Group and Warner Music Group, ending Tencent’s market dominance in the country’s music streaming market.