Tencent goes from buyer to seller with investment pivot

Chinese internet giant Tencent is focusing on divestments after years of aggressive stakes as it faces pressure from investors and Beijing’s recent backlash against big tech.

As part of a key shift in strategy, the company has outlined a soft target to sell about 100 billion yuan ($14.5 billion) of its $88 billion listed equity portfolio this year, according to two people familiar with the matter. person said. This happens depending on market conditions and internal profit targets.

A partial sale of major Chinese companies such as food delivery service Meituan is underway, the people said. Meituan was not a top priority for a stake sale because of its strong performance, but reducing its stake could ease pressure on his Tencent from anti-monopoly regulators, the people said. said.

A crackdown that began in 2020 has turned about 100 transactions involving Alibaba and Tencent into antitrust investigations by Chinese regulators, upending China’s once laissez-faire approach to its massive internet sector. rice field.

Investors are also pressuring the company to sell underperforming assets as China’s zero-corona policy and property crisis hit the economy, said a third party with direct knowledge of the matter. .

In August, Tencent reported its first quarterly revenue decline due to weak advertising and game sales. It marks a departure from his era of double-digit growth for the internet business, which has fueled the company’s aggressive investment strategy.

The company’s new approach was not driven by an urgent need for cash, and the sale proceeds could be distributed in a variety of ways, including special dividends to shareholders, share buybacks and employee bonuses. officials said there is. Two of his employees, who declined to be named, said they began receiving stock dividends in the form of shares this year.

Proceeds in 2022 will contribute to two batches of funds planned by Tencent based on themes championed by Beijing, including sustainable social values ​​and shared prosperity, two of the people said. . Tencent last year pledged to raise 100 billion yuan to help revitalize rural areas and boost incomes for low-income earners, in a move in line with Beijing’s call for greater corporate social responsibility. .

In response, Tencent said, “We have repeatedly publicly stated that our RMB 100 billion commitment to sustainable development initiatives is a multi-year initiative separate from our investment decisions. There is no timeline, it takes place over time and does not determine investment decisions.”

Tencent has already begun divesting, but one person said the investment team is still working out which shares in non-core businesses can be cut and at what target prices. The Shenzhen-based group owns more than 10% of him in six of China’s largest listed tech companies and is the largest developer of Meituan, the short-video sharing app Kuaishou, and the popular question-and-answer site Zhihu. Also an investor.

In January, it sold over $3 billion in stake in Singapore internet conglomerate Sea. Last year, Tencent distributed his $16.4 billion worth of stake in e-commerce player to shareholders as a dividend. This was a surprise move that was seen as the beginning of a strategic pivot.

Tencent added: We have always invested with the goal of generating significant returns for the company and its shareholders, rather than following arbitrary timelines or goals. We are also not under any external pressure on our investment portfolio. In fact, recent divestments and Sea have performed well, generating returns many times their initial investment. We continue to make decisions independently and in the best interest of our shareholders over the long term. “

Fitch Ratings analysts Kelvin Ho and Jia Wen said that despite the shift in strategy, Tencent has invested in overseas and strategic growth areas, albeit more selectively than before. Expected to continue. May.

Additional reporting by Sun Yu in Beijing

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