The impact of Tencent’s share divestments

Tencent has an impressive venture portfolio that consists of companies like Tesla, Nio, Didi, GoTo, JD.com, Meituan, Sea, Pinduoduo, Snap, Reddit, Kuaishou, Bilibili, Futu, and more. However, Tencent’s actual value and the extent of its holdings aren’t clear because the company doesn’t disclose these details.

One thing for sure is that the company’s portfolio value has declined significantly due to the regulatory clampdowns in China.

Photo credit: Tencent

Over the last month, Tencent has made several surprise moves: It divested its stake in JD.com and pared down its stake in Sea Group. Following this trajectory, Tencent could be unwinding more investments in the future.

Here are some guesses what those might be.

Tencent’s decisions

In December, Tencent announced it was divesting shares in JD.com, which caused the Chinese ecommerce firm’s share price to tank. A few weeks ago, Tencent sold US$3 billion worth of shares in Southeast Asian internet giant Sea Group at US$208 each. As a result, Sea’s share price dropped 11.4% to US$197.84 at the time.

After the sale, Tencent’s stake in Sea dropped from 21.3% to 18.7%. Tencent will also be restricted from selling Sea shares over the next six months.

However, I believe the divestment will continue, adding more selling pressure to Sea shares.

This means that Tencent can potentially raise another US$20.5 billion if it eventually divests its entire Sea stock at the internet company’s present market capitalization.

With the current US$3 billion sale in Sea and US$16 billion sale in JD, Tencent is sitting on US$19 billion in cash. As of June 30, 2021, Tencent had US$38.8 billion in cash and deposits, so the two share sales are a significant cash injection for the company.

Future choices

Why is Tencent doing this? The company has invested in several startups and has built up an impressive venture portfolio. I think this is due to the ongoing regulatory pressure in China and because Tencent’s stakes in numerous successful enterprises in the country are seen as anti-competitive.

If my theory proves true, then Tencent will have to unwind more investments in the coming months. The next likely candidate would be Pinduoduo since it is also an ecommerce player like JD and Sea. Tencent has a 15.6% stake in Pinduoduo, so a complete divestment at a share price of US$49.82 apiece would raise US$9.8 billion for the Chinese tech titan.

After Pinduoduo, the next target would be Meituan, another major platform player in China. Tencent has a 17.2% stake in Meituan, which would be worth US$27.1 billion at the time of writing.

Once Tencent divests shares in its ecommerce bets, the next group would be the online streaming platforms.  Kuaishou would be the first on the chopping block: Tencent has a 17.8% stake in the video-sharing app worth about US$6.4 billion.

Uncertain effects