Tencent reducing its stake may allow Sea Ltd to operate more globally

  • Tencent Holdings Ltd would cut its stake in Sea Ltd to 18.7% from 21.3%. 
  • With less than 10% voting rights of Tencent, Sea Ltd may not be labeled a Chinese controlled company
  • Maintain BUY with unchanged TP of US$402. 

Tencent Holdings Ltd would cut its stake in Sea Ltd to 18.7% from 21.3%. According to a term sheet reviewed by Reuters, Tencent is selling at a price range of $208.00-$212.00 per share, bringing the total divestment to up to US$3.1 billion. Sea’s last close price was $223.31 per share.  Tencent still retains 18.7% stake in Sea Ltd while it recently chose to cut its stake in Chinese e-commerce company JD.com to 2.3% from 17% earlier. Tencent said it intends to retain the substantial majority of its stake in Sea for the long term. “The share sale unlocks a portion of the value of Tencent’s investment in Sea, which has seen significant growth and expansion in its global business operations. The divestment provides Tencent with resources to fund other investments and social initiatives,” the company said in a statement. 

Tencent to reduce its voting rights in Sea Ltd to less than 10%.  Tencent will also convert all its class B ordinary shares to class A ordinary shares, reducing its voting power rights to less than 10%. Sea’s ecommerce arm Shopee has been facing calls for a ban from an Indian trade body due to its alleged “Chinese roots” and claims of it being operated by Tencent. Sea Ltd also operates its gaming business in India. The trade body has cited an Indian rule whereby an entity of any country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only through the government route.

We maintain BUY call on Sea Ltd with unchanged TP of US$402