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

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

(Bloomberg) — Tencent Holdings Ltd.’s plan to dole out $20 billion of stock in meal delivery giant Meituan triggered a broad selloff of Chinese internet stocks on Thursday.

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The benchmark Hang Seng Tech Index slid more than 5% in hectic morning trade. Meituan plunged as much as 6.7%, while other Tencent invested including Kuaishou Technology and Bilibili Inc. plunged more than 7%.

Tencent pledged Wednesday to distribute the majority of its Meituan shares to investors, ramping up plans to reduce its extensive holdings across 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 distribution of Meituan shares could be dragging sentiment as market worries about further divestments from its significant holdings of Chinese tech shares,” said Vey-Sern Ling, managing director at Union Bancaire Privee.

Read more: Tencent to Distribute $20 Billion Meituan Stake as Dividend

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

The move emerged as Tencent reported revenue shrank for the second straight quarter, underscoring the extent to which China’s worsening economy is hurting its mammoth private sector. The company’s exit from JD and now much of Meituan comes after Xi Jinping imposed a series of withering curbs on the industry in 2021, including restrictions on play time and content.

The move marks another retreat for Tencent, which along with Alibaba Group Holding Ltd. held sway over much of China’s tech sector for more than a decade. Apart 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 biggest internet company, Sea Ltd.

Beijing has punished 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 may buy goodwill with the government, which has pushed for the dismantling of such barriers and for tech firms to share the wealth.

Chinese tech shares recovered some of their losses this month, after the Communist Party began pulling back from its Covid-Zero playbook and offered more incentives to the Biden administration to work together. Xi’s shift on those fronts, coupled with perceptions of a renewed focus on reviving the world’s No. 2 economy, is spurring speculation that Beijing will begin to unshackle the private sector.

On Wednesday, executives reassured investors that Tencent will soon resume winning crucial licenses to release new major titles, reviving growth in domestic gaming. “The overall regulatory environment is trending 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 sedate growth, shifting focus to enhancing profitability from chasing market share after Beijing’s crackdown wiped more than $1 trillion off their combined market value in 2021. While regulators have eased up on their campaign against tech, the once-freewheeling sector remains saddled by weak consumer spending and strict Covid restrictions.

–With assistance from Lianting Tu.

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