News Alert:Tencent divesting 2.6% stake in SEA and reducing voting power to below 10%

  • Tencent entered into a transaction to divest 2.6% stake or 14.5m shares in SEA Ltd
  • Management reasoned that the divestment provides resources to fund other investments and social initiatives
  • Do not expect much share price reaction given the insignificant unlocked value of c.US$3bn
  • The development is consistent with Tencent’s latest capital deployment strategy of focusing on core business growth

What’s New

– Tencent entered into a transaction to divest 2.6% stake or 14.5m shares in SEA Ltd (SE US), according to the company’s press release.

– Tencent’s stake in SEA Ltd will be reduced from 21.3% to 18.7%.

– The company also proposed to reduce its voting power to below 10% by converting its super voting power Class B shares into Class A shares.

– Management reasoned that the divestment provides resources to fund other investments and social initiatives.

Our View:

– We do not expect much share price reaction on Tencent given the insignificant unlocked value of c.US$3bn (estimated based on latest SEA Ltd’s share price).

– The divestment is consistent with Tencent’s latest capital deployment strategy of focusing on core business growth, and unlocking the company’s value by selling matured investments. 

– In terms of longer time investment direction, the news should give limited surprise to the market, given that it has announced to sell 14.7% stake in JD.com and distributed as special interim dividend in Dec 2021. 

– We currently rate BUY on Tencent with TP of HK$671.