Tencent Holdings Ltd. plans to release more than $16 billion in JD.com Inc. shares as a one-time dividend, signaling a near-retreat from the Chinese e-commerce business and expressed concern that it would withdraw from other high-profile investments.
The unexpected decision to sell the majority of its share in China’s No. 2 online store comes as Beijing punishes the country’s internet behemoths for monopolistic behavior, such as creating closed ecosystems that favor some companies at the expense of others. Tencent’s gift may purchase goodwill with the government, which has advocated for the removal of barriers and the sharing of riches among internet businesses. As part of the agreement, Tencent President Martin Lau will step down from JD.com’s board of directors on Thursday.
JD.com shares fell as much as 11% in early Hong Kong trade, while fellow Tencent investees Meituan, Kuaishou Technology, and Bilibili Inc. also fell at least 3%. Tencent’s shares increased by more than 3%.
“The divestment should not be taken as a complete surprise and might be interpreted as a reaction to anti-monopoly investigations — it’s very evident that regulators don’t want to see too many ‘faction-like’ patterns in big tech,” said Chen Da, executive director of HHSC Assets (HK). “It’s likely that it will be interpreted as the beginning of breaking up the huddle a little.”
According to a Hong Kong stock exchange filing, Tencent intends to issue 457.3 million Class A shares in JD.com, representing approximately 86.4 percent of its overall holding and nearly 15 percent of the online retailer’s total issued shares. The proposed distribution’s shares were worth HK$127.7 billion ($16.4 billion) as of Wednesday’s close. Tencent, which owns over 17 percent of JD.com, will hold approximately 2.3 percent of the e-commerce company’s shares following the handout, according to a separate announcement from JD.com.
The special dividend would be one of the highest ever given to shareholders by a Chinese technology company, which has long relied on rapid development and investment to satisfy investors. Tencent’s goal is to invest in firms during their development stage and depart when they are able to fund future initiatives on their own, according to the internet giant.
“The Board feels that JD.com has now attained such a position, and the Board consequently considers that it is an opportune moment to transfer” the majority of the business’s shares to its investors, according to the company.
The proposed payout comes after more than a year of intense regulatory scrutiny on Chinese technology stocks. The antitrust crackdown, which has extended to after-school education, gaming, and online content, has slowed development at internet companies ranging from Tencent to Meituan and fierce rival Alibaba Group Holding Ltd., pushing the companies to invest substantially in new revenue streams.
Xi Jinping’s demand for “shared prosperity” and a reduction in economic disparity has also prompted businesses and their owners to make public contributions to charitable causes. Tencent has already announced that it will put aside $15.7 billion for social responsibility initiatives.
Tencent stated that the two companies will continue to have a “mutually advantageous commercial relationship, including through their continued strategic alliance.”
With Tencent as a key stakeholder, JD.com gained access to the internet giant’s massive ecosystem, including the super app WeChat, which is used by the majority of Chinese customers for communicating, paying bills, and making transactions. It’s one of several Tencent-backed companies, like Pinduoduo Inc., Didi Global Inc., and Meituan, that have risen to dominate their respective fields, thanks in part to the massive traffic generated by WeChat’s billion-plus users.
Competitors such as Alibaba have long complained that links to their services have been banned, but this is gradually changing as part of Beijing’s vow to eliminate anticompetitive activity on the internet. According to Bloomberg News, Tencent will soon allow WeChat groups to post links to other shopping sites such as Alibaba’s Tmall and Taobao.
Tencent’s proposal to release the majority of its ownership in JD.com to shareholders as a special dividend may foreshadow larger divestments of Tencent’s China e-commerce ventures, such as Kuaishou and Pinduoduo, in the future. The decision could be in response to China’s anti-monopoly drive, which wants to encourage fairer competition between Tencent affiliates and Alibaba and others, and it could offer Tencent more leeway in accelerating international acquisitions.
According to Gary Ching of Guosen Securities, other corporations, including as Alibaba, may have to remove past investments in some successful startup companies (HK).