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.