Tencent’s $20 Billion Meituan Stake Cut Ignites Internet Selloff

(Bloomberg) — Tencent Holdings Ltd.’s plan to allocate $20 billion worth of shares in food delivery company Meituan sparked a broad sell-off in Chinese internet stocks on Thursday, as investors fear more divestitures by the online gaming company are on the horizon .

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The benchmark Hang Seng Tech Index slipped more than 5% in busy morning trade. Meituan lost as much as 6.7% while other Tencent holdings including Kuaishou Technology and Bilibili Inc. tumbled more than 7%.

Tencent on Wednesday pledged to distribute a majority of its Meituan shares to investors and move ahead with plans to reduce its sizeable holdings in the world’s largest internet industry. The decision marks a milestone in Tencent’s evolution from a sprawling internet empire with investments across much of China’s tech sphere to a more focused gaming and social media operator.

“Tencent’s sale of Meituan shares could weigh on sentiment as the market worries about further divestitures of its significant holdings in Chinese tech stocks,” said Vey-Sern Ling, managing director at Union Bancaire Privee.

Read more: Tencent pays out $20 billion in Meituan stake as dividend

Tencent, which announced plans to reduce its stake in online retailer JD.com Inc., will distribute more than 958 million Class B shares in Meituan as a special dividend. The stock to be cashed out, valued at about HK$155 billion (US$19.8 billion) at Wednesday’s close, represents about 91% of Tencent’s Class B stake.

The move came as Tencent reported a second consecutive quarter of revenue declines, underscoring the extent to which China’s deteriorating economy is hurting its vast private sector. The company’s exit from JD, and now much of Meituan, comes after Xi Jinping imposed a scathing series of restrictions on the industry in 2021, including restrictions on playtime and content.

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The move marks another pullback for Tencent, which along with Alibaba Group Holding Ltd. dominated much of China’s tech sector for more than a decade. Aside from JD and Meituan, Tencent also owns part of Didi Global Inc. And this year it sold about $3 billion worth of shares in Southeast Asia’s largest internet company, Sea Ltd.

Beijing has fined the country’s tech giants for anti-competitive behavior, including maintaining closed ecosystems that favor certain companies at the expense of others. The JD and Meituan dividends could buy goodwill from the government, which has pushed for the dismantling of such barriers and wealth-sharing by tech companies.

Chinese tech stocks recouped some of their losses this month after the Communist Party began to back away from its Covid-zero playbook and offered more incentives for the Biden government to cooperate. Xi’s shift on these fronts, coupled with perceptions of a renewed focus on reviving the world’s No. 2 economy, is spurring speculation that Beijing will begin to unleash the private sector.

On Wednesday, executives reassured investors that Tencent would soon regain key licenses to release new big titles and revive domestic gaming growth. “The overall regulatory environment is leaning towards a more supportive environment,” President Martin Lau told analysts on a conference call.

China’s internet industry has made peace with a new era of leisurely growth, shifting to boosting profitability by chasing market share after Beijing’s crackdown wiped out their combined market value by more than $1 trillion in 2021. While regulators have eased their campaign against technology, the once freewheeling sector continues to suffer from weak consumer spending and tough Covid restrictions.

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–With the support of Lianting Tu.

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